Hand holding Australian notes

The government has an opportunity to address wage theft issues

9 June 2023
Most contemporary policies have failed to increase employer compliance
A new labour agreement for temporary skilled workers in aged care is a promising step towards enforcing Australia's minimum wage laws because it provides for union induction of temporary migrant workers, writes Associate Professor Stephen Clibborn in the Sydney Morning Herald.
Associate Professor Stephen Clibborn

Associate Professor Stephen Clibborn

A newly announced plan for Home Affairs to consult on an ‘expanded role for third-parties in education initiatives and reporting non-compliance’ also hints at greater union involvement in enforcement. Wider reforms granting unions better access to support workers will likely help address the wage theft crisis.

The Albanese government is developing policies targeting widespread wage underpayments. Reforms should be guided by the question: will they increase employer compliance? This may sound obvious, but most contemporary policies have failed to do so.

Recent governments have made three mistakes in their efforts to address wage theft. First, preserving the state’s role as primary enforcer but never adequately funding the Fair Work Ombudsman (FWO). Second, assuming that increasing maximum penalties, applicable to a small subset of deliberate and systematic wage thieves who are caught, would deter all employers from underpaying. Third, relying heavily on individual victims recovering unpaid wages.

Businessman handing cash to unseen worker

The Albanese government is developing policies targeting widespread wage underpayments. Pictures: Adobe Stock

My new research examines the largely neglected employer perspective on wage underpayments. In-depth interviews with owners and managers of a wide range of businesses in hospitality, retail and horticulture - where underpayment is common – provide insight into why and how employers underpay their workers and what can be done about it.

Employers break our minimum wage laws because they are inadequately enforced and because of ‘worker vulnerability’. This means employees have inadequate power to stand up for their rights.

Unions are well-placed to address both of these causes by increasing worker power to resist underpayment through collective enforcement. Union members in workplaces can detect and correct pay errors, pressuring employers to comply. However, government reforms are needed to facilitate union involvement.

Employers are not powerless to resist temptation to underpay wages when presented with the twin opportunities of vulnerable workers and inadequate enforcement. It is their choice.
Associate Professor Stephen Clibborn

Employers don’t always choose to deliberately steal their employees’ wages, but it is wrong to assume - as many employer representatives have - that most underpayment is due to honest mistakes applying complex awards. This view contributed to current inadequate policies narrowly targeting penalties at ‘bad’ deliberately underpaying employers.

Instead, employers choose whether to sufficiently invest in the knowledge and systems necessary to comply with wage law. They make these same choices when hiring accountants and utilising accounting systems to comply with tax law.

My research found a large proportion of employer breaches related to their inadequate efforts to understand minimum pay requirements and implement compliance systems. These employers felt negligible pressure to change behaviour due to little expectation of FWO inspections, little union presence and little fear of individual workers taking action.

Clenched fist holding Australian $50 notes

The research confirms that the headline policy measures of recent years are unlikely to change employers’ behaviour. Very few employers were aware of maximum applicable penalties or that they had increased considerably, including new criminal sanctions in Queensland and Victoria. Increased penalties won’t change employer behaviour if they are unknown and unenforced.

Businesses increase compliance in response to increased enforcement. For government, enforcement is a matter of resource allocation. But this should not be limited to funding the Fair Work Ombudsman. While the Ombudsman plays a crucial role in enforcement, it is not inside workplaces like workers.

International research confirms the effectiveness of co-enforcement, where governments and worker representative organisations share enforcement responsibility. Only a few decades ago, before the current wage theft crisis, and before the Fair Work Ombudsman was created, Australia relied heavily and successfully on union enforcement in partnership with the state. But successive governments’ marginalisation of unions, including restricting their ability to enter workplaces, speak with potential members and inspect wage records, has reduced enforcement.

The government has one shot to address the real underlying causes of the problem, by harnessing collective power of workers to enforce our wage laws. But will it seize this opportunity or just let it slip?

Associate Professor Stephen Clibborn teaches and researches at the University of Sydney Business School where he is Co-Director of the Sydney Employment Relations Research Group. This piece was originally published in the Sydney Morning Herald.

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