On the record: Understanding the importance of record-keeping compliance

As the conversation around “wage theft” continues in the media and politics, the importance of award compliance remains at the forefront of employers’ minds. Key amongst basic obligations under the law that are sometimes overlooked by employers is record-keeping.

A recent decision of the Federal Circuit Court serves as a valuable reminder that failure to fulfil obligations with respect to employee records and pay slips can attract serious consequences for employers, as well as their service providers.

Record-keeping requirements

The Fair Work Act 2009 (Cth) (FW Act) and the Fair Work Regulations 2009 (Cth) (FW Regulations) provide that employers must:

• make ‘employee records’ prescribed by the FW Regulations in relation to each of its employees;
• keep employee records for 7 years;
• give a pay slip to each of its employees within one working day of paying them for performing work;
• not make or keep an employee record that they know is false or misleading;
• give an employee a pay slip that they know is false or misleading; and
• correct a record as soon as they become aware that it contains an error.

The FW Regulations also prescribe the form and content of employee records and pay slips. For example, pay slips must include information including, but not limited to:

• the employer’s name and ABN;
• the date on which the payment that the pay slip relates to was made; and
• any amount paid to the employee that is a bonus, loading, allowance, penalty rate, incentive-based payment or other separately identifiable entitlement.

Modern awards can also provide for certain records to be made and kept. Where such a requirement exists, failure to keep that record will constitute a contravention of section 45 of the FW Act. A common example of modern award record-keeping requirements often arises with respect to the hours of work for part-time employees. For example, clause 10 of the General Retail Industry Award 2020 provides that an employer must agree with a part-time employee to a ‘regular pattern of work’ in writing and keep a copy of the agreement and any variations, specifying:

• the number of hours to be worked each day;
• the days of the week on which the employee will work;
• the times at which the employee will start and finish work each day; and
• when meal breaks may be taken and their duration.

Consequences of contravening record-keeping requirements

Depending on the terms of the modern award, failure to comply with record-keeping requirements can result in penalty or overtime payments becoming payable to the employee. In addition, where an employer does not comply with their record-keeping requirements under the FW Act, FW Regulations or modern award, they may face significant penalties of up to $666,000 for serious contraventions by a body corporate.

Beyond penalties, failing to satisfy record-keeping requirements can have other major consequences for an employer. Under section 557C of the FW Act, where an employer fails to make and keep employee records, give pay slips, and/or make a record available for inspection, the employer will have the burden of having to disprove any allegations made against them in relation to matters including contraventions of modern awards or the National Employment Standards.

In practice, this means that if an employee alleged that they had been underpaid a modern award entitlement and the employer had not kept records of that entitlement as required, a Court would consider the allegation to be substantiated unless the employer was able to disprove the allegation.

Liability of service providers for record-keeping contraventions

The recent case of Fair Work Ombudsman v Austop Natural Therapy and Supplies Pty Ltd & Ors [2020] FCCA 2920 highlights the risk to third-party service providers for the role they play in record keeping compliance.

The prosecution arose from an investigation by the Fair Work Ombudsman into Austop’s employment of a temporary visa holder, Ms Zhongyu Zhou, in a massage parlour owner by the company.

During Ms Zhou’s employment as a full-time massage therapist between 24 December 2016 to 23 July 2017, Austop never provided her with pay slips and paid her in cash on a commission-only basis. This method of payment resulted in Ms Zhou being underpaid her minimum entitlements under the Hair and Beauty Industry Award 2010 (HBIA) by $13,521.68.

After Ms Zhou’s employment with Austop ended, an FWO Inspector provided Austop with a Notice to Produce documents in relation to Ms Zhou’s employment, including documents detailing her rate of pay, hours worked, and pay slips. However, since Austop had not given pay slips, they authorised their accountant to respond on their behalf and provide pay slips indicating that Ms Zhou had received pay slips and had been paid in compliance with the HBIA.

The accountant prepared records that purported to be pay slips given to Ms Zhou, despite knowing that these pay slips were false or misleading. While at first the accountant claimed that the pay slips were created to establish how much Austop “ought to have paid”, they eventually admitted to the breach. As such, the FWO included the accountant as a party to the proceedings in its prosecution of Austop for contraventions of the FW Act and FW Regulations.

Despite acting at the authorisation of its client, Austop, the Federal Circuit Court ultimately ordered the accountant to pay the largest penalty of all of the respondents for their contraventions.

As such, businesses supporting employers in meeting their legislative and award requirements should take note and ensure that they are considering their own compliance obligations under the FW Act.

If you’re concerned about keeping up with all of your record-keeping requirements and whether you’re compliant, call 1800 572 679 to speak with one of our team.