The Risk of Underpayment for the Building and Construction Award

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The Building and Construction General Onsite Award and the risk of underpayment

The Building and Construction General Onsite Award 2023 (the Award) applies to the on-site building, engineering and civil construction industry.

The Award is very broad and complex, inadvertently leading to the risk for underpayment of wages to employees as employers struggle to determine and adhere to their legal obligations. 

Key factors that can contribute to underpayment include: 

  • ▪ Lack of knowledge of the interplay between industrial instruments, the Award and the NES;
  • ▪ Entitlement changes; 
  • ▪ Failure to keep proper records accurately record hours of work and breaks;
  • ▪ Misclassification of employees;
  • ▪ Ineffective timesheet systems to monitor, detect and address non-compliance.

Common Mistakes by Building & Construction Award Employers

Many construction businesses have their own employment contracts or registered Enterprise Agreements that govern entitlements and working conditions for employees. The Award does not cover an employee if there is a registered agreement in place. Yet, the employment contract or Enterprise Agreement must not provide for entitlements to be less than the National Employment Standards (NES) and minimum entitlements governed by the Award, even if this has been negotiated and accepted by the employee. 

Employers must be vigilant in replacing and registering new agreements, so they are relevant and above minimum pay rates which are reviewed and revised by the Fair Work Commission (FWC) each year. Employers should also note that when an enterprise agreement expires it continues to operate until it has been terminated. This means pay rates can fall below Award rates and lead to underpayment. 

Annualised Wage Agreements can also be caught out by updated pay rates.  Salaries  need to be high enough to cover all of the Modern Award entitlements and to cover the actual hours worked such as overtime rates, weekend and public holiday penalty rates. 

Recent Changes to Entitlement Rules Under the Building & Construction Award

Entitlement changes are brought about for several simple reasons such as an employee’s change in age, duties, qualifications, and course completions. Yet, there are also other ways that employers are caught off guard. Pay rates tend to be increased once a year, typically in line with inflation but this is at the Federal Government’s discretion. The government of the day also has discretionary power to make an update  to the NES, the Award itself or legislation such as the Fair Work Act 2009 (Cth). These changes can all have an impact on the minimum pay rates for your staff.

Many underpayments can be rectified by employers as soon as they are discovered and there is no requirement to notify the Fair Work Ombudsman. 

Such action can eliminate the risk of underpayment in the future as the Fair Work Ombudsman can investigate and audit any business to find contraventions of the Fair Work Act, the Award and/or enterprise agreements. This can be done randomly or in response to allegations of underpayments by employees. Underpayments can be claimed even by those who are no longer employed by the business, and 6 years after that underpayment.  This can lead to an audit/investigation of the contravening business. Now the employer finds out the hard way that they are in contravention of multiple workplace laws including misclassification of employees, not providing accurate penalty rates, allowances, record-keeping and pay slip obligations. 

If any contraventions are found a Fair Work Inspector can issue a Compliance Notice which requires the employer to remedy underpayment within a set time frame. This  involves employers calculating and rectifying any outstanding entitlements plus superannuation and interest owed to an employee. They also need to provide evidence of compliance which means often the offending party will need to get external assistance from accountants and lawyers. 

If the underpayments are not rectified the Fair Work Ombudsman can commence court proceedings and corporations may receive penalties up to $66,600 per breach per employee and $13,320.00 per breach for any person who is knowingly involved in the breach such as a director or manager.

If numerous contraventions are found as part of a systemic pattern of conduct, these are deemed ‘serious contraventions’ with the maximum penalty for a business at $630,000 per breach and $126,000 for an individual. In addition to monetary losses, companies can experience severe reputational harm which can then lead to more damage by loss in trade opportunities and public backlash. 

Case studyFair Work Ombudsman v L.E.C Builders & Designers Pty Ltd

LEC underpaid a young worker that then approached the Fair Work Ombudsman for assistance. 

After an investigation, a Compliance Notice was issued to correct the underpayments of minimum hourly rates, fares and travel pattern allowance and annual leave entitlements. 

LEC and its sole director did not comply with the notice and were given multiple opportunities to do so. The Fair Work Ombudsman tried to persuade them to voluntarily comply but were ignored and so commenced legal proceedings. 

The failure to comply with the notice meant that penalties were ordered on top of the back-payment due to the employees in the amount of $44,108.50 in penalties and compensation. 

If LEC had complied with the compliance notice the matter would not have escalated to litigation. It would be a simple case of calculating and back-paying an employee. 

If you have been issued with a Compliance Notice from Fair Work then Fairtime can help you respond.

Employers who identify and rectify underpayments without the need for intervention by the Fair Work Ombudsman are less likely to be prosecuted. Those who are prosecuted may still find themselves with less severe penalties if:

  • ▪they cooperate with the Fair Work Ombudsman
  • ▪admit to a contravention as early as possible
  • ▪the employer and/or director has expressed regret/remorse for previous inaction 
  • ▪there is no prior history of underpayment by the employer

 

Case Study – Fair Work Ombudsman v Personnel Contracting Pty Ltd

Personnel Contracting Pty Ltd provided labour to construction sites in Perth. The company had underpaid five labourers aged between 16 and 21 a total of $19,111 for work performed over a four-month period in 2016. 

Fair Work Inspectors commenced an investigation in relation to concerns for workplace compliance issues after a fatal accident. It was found that Personnel misclassified their workers to be ‘self-employed contractors’  and they were paid flat hourly rates below the minimum wage rates under the Award.  

For several breaches of the Fair Work Act the company faced penalties of up to $54,000 per contravention.

The courts will look at the whole relationship between the parties to determine whether a worker is a contractor or an employee along with the terms of the contract between the parties.

Some indicators of the difference between the two can be found here

#1 Cause of Underpayment – Failure to keep proper records

The keeping of records and reliable payroll systems is necessary for employers to be compliant with their legal obligations.  Fair work inspectors can order the production of records at any time for inspection, and not keeping accurate records can result in fines. 

If allegations of underpayment are made by an employee, the employer has the burden of disproving the allegations if proper records are not kept.  

Proper records include: 

  • – Pay records
  • – Hours of work records
  • – Leave records
  • – Superannuation contributions records
  • – Individual flexibility arrangement records
  • – Annualised wage arrangement records
  • – Guarantee of annual earnings records
  • – Termination records
  • – Transfer of Business records
  •  

Employee records must:

  • – be in a form that is readily accessible to a Fair Work Inspector
  • – be in a legible form and in English (preferably in plain, simple English)
  • – be kept for seven years
  • – not be altered unless to correct an error
  • – not be false or misleading to the employer’s knowledge.

 

#2 Cause of Underpayment – Misclassification of employees 

In relation to the construction industry, an employee might  simply be misclassified based on what duties they are undertaking. For example, a construction worker may be classed as a level 3 worker but maybe doing level 4 work. 

What is more serious is the misclassification of employees as independent contractors. Ordinarily independent contractors have no employee entitlements such as paid sick or annual leave, or protections under the Fair Work Act 2009 (Cth). If an employee is misclassified as an independent contractor this can have a serious financial impact. Because of the severe impacts felt on behalf of the employees due to this type of misclassification it doesn’t matter to regulators if the misclassification by the employer was innocent or intentional.  The distinction between employee and independent contractor has been debated fiercely in recent times in the context of ride share drivers and food delivery riders.

If you are having trouble in determining whether an individual is an independent contractor or an employee, Fairtime can help you. 

#3 Cause of Underpayment – Ineffective timesheet systems

Many construction companies are still relying on paper timesheets to track their hours or using “time-punching” bundy clocks. These methods can also contribute to the risk of underpayment of wages due to calculation errors, forgetful employees and lost or damaged time sheets. Having a streamlined and user-friendly system would alleviate the administrative burdens felt by employers and employees and allow the review of work hours to improve staff wellbeing. 

Having an effective timesheet system is one way businesses can prevent wage theft. On the flip side, an effective payroll compliance system can also ensure staff are paid at the RIGHT rate. This distinction is important because construction projects with strict budgets also want to prevent overpayment at the same time. 

Fairtime can assist you in the setup and maintenance of an effective timesheet system. 

Why Fairtime is the best option for your business

If you are running a building and construction business that employees staff under an Award, you simply cannot ignore payroll compliance. To get on top of your pay rates and effectively get your payroll compliance in order your business has three potential solutions:

  • 1 Contact an employment or tax lawyer for a written advice (this can be costly and may not eliminate your ongoing risk of underpayment that arises every pay cycle)
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  • 2 You can outsource your payroll (which will not solve anything as you still carry liability as the employer of the underpaid staff)
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The third available option is to use Fairtime. This eliminates the risk of non-compliance  and automates payroll process once and for all.

Have more questions?

Underpayment is taken very seriously in the Building and construction industry.  Send us any questions you have below and our team will respond within 24 hours. 

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