Recently, our Managing Director, Athena Koelmeyer presented a webinar for Payroll HQ‘s Learning Lab subscribers on accessorial liability under the Fair Work Act 2009 (Cth) (FW Act).
Here are some of your questions with answers from Athena.
- What is best practice to avoid being subject to accessorial liability?
It is important that anyone involved in the payment of employees (including the setting of pay rates, approving the payment of wages, processing wages etc) have in place appropriate processes for ensuring that employees are paid correctly, statutory entitlements are accrued properly and accurate records are maintained.
These processes should include:
- Ensuring that employers inform themselves of their obligations under the FW Act and modern awards including minimum entitlements and record keeping obligations;
- Properly classifying award covered employees;
- Ensuring that employees are paid minimum entitlements including allowances, penalties and loadings;
- Keeping compliant records;
- Keeping up to date with any changes to modern awards, for example annual wage increases to minimum rates of pay, allowances, penalty rates and other loadings; and
- Conducting regular audits to ensure that employees are paid correctly.
- What risks can a payroll software provider be exposed to?
Payroll software providers should ensure that the software they provide is “fit for purpose”, that is, the product will produce a compliant result for customers.
Currently payroll software is provided to customers as a platform and it is (generally) up to the customer to modify and tailor the software to their individual needs to create a compliant position. In the future, we expect that it will no longer be sufficient for payroll software providers to just provide a platform – there will be an increased expectation that products are tailored to better support customers to achieve compliance.
- As a Bookkeeper, how would I protect myself if I am only responsible for processing what I am given? I am not a HR consultant
It is not sufficient for a person to argue that they were just processing payroll where they know or should have known that the payments are not sufficient to comply with minimum entitlements.
In Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810, Ezy Accounting 123 Pty Ltd (Ezy) was found to be accessorily liable for the contraventions of the FW Act which resulted in the underpayment of an employee. The employee was paid one flat rate of pay for all work he performed and was not paid loading, penalty rates. He was also not paid allowances or given required breaks.
Ezy denied that it provided payroll services, rather it argued that it provided bookkeeping services which included processing of payroll. In short, Ezy submitted that all it did was process the payroll and did not know how many hours the employee worked, whether he received meal breaks or that he was not paid penalty rates, loadings or allowances.
The Federal Circuit Court of Australia held that Ezy was accessorily liable for the contraventions of the FW Act. The Court was satisfied that the director of Ezy was “wilfully blind” and that Ezy “deliberately shut its eyes” to the underpayments.
On appeal in EZY Accounting 123 Pty Ltd v Fair Work Ombudsman  FCAFC 134, the Full Federal Court held it was open for the Judge at first instance to find that the director of Ezy was “knowingly concerned” in the contraventions as he knew that:
- Employees were paid a flat hourly rate of pay;
- A modern award applied and that the award provided base rates of pay, penalty rates and allowances;
- The flat hourly rate of pay was being paid at a rate below the minimum rates of pay; and
- Employees would be underpaid under the payroll system,
notwithstanding that he did not know the particular hours worked or the particular provisions of the award.
- How liable are you as an individual being an employee of a third party eg accountancy practice, for clients’ payroll issues?
The accessorial liability provisions under section 550 of the FW Act provides that a “person” who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
We know from the prosecution activities of the Fair Work Ombudsman (FWO) that this is a broad interpretation of “person” and can extend quite far. It can include a company, owner-operators, managers, directors, HR Managers, payroll officers, HR consultants and advisers, accountants and third-party providers.
- If you terminate a client because of payroll issues can you be held liable years down the track?
The FWO is primarily concerned with those persons who are aware that they are not compliant with the FW Act, modern award or enterprise agreement, but continue to act in contravention of their obligations.
If a payroll provider makes a client aware that their systems are not compliant, refuses to participate in the contravening conduct and terminates the relationship with them, then the payroll provider has done all that they can do to make the client aware of their non-compliance and not participate in any contraventions.
- If you quit a job because of this then don’t dob them in, would that come back to haunt you?
As noted above, the accessorial liability provisions of the FW Act are intended to capture key persons who are “involved in” contraventions. A person who knowingly participated in contraventions is liable to prosecution under the FW Act.
In Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown  FCA 1301 (New Shanghai Charlestown decision), Justice Bromwich commented that “There is nothing wrong with sending the message that an employee should indeed resign if that is the only alternative to continuing to participate knowingly in illegal activity, ideally coupled with reporting the conduct, in a case such as this, to the FWO” (emphasis added). He added that this would “rob a primary offender such New Shanghai Charlestown and its guiding mind, Mr Chen, of the means of having such conduct continue except by, in this case, Mr Chen’s own hand.”
In short, the Court is saying that persons should not aid, abet or knowingly participate (i.e. be “involved in”) in the contravention and preferably should report the conduct to the FWO. If a person has left the organisation and the employer continues to knowingly contravene the FW Act, then they would be doing so of their own accord.
- How can accountants and bookkeepers report breaches to the Fair Work Ombudsman when the Tax Practitioners Board Code of Conduct and confidentiality rules apply?
As noted above, the Federal Court of Australia in the New Shanghai Charlestown decision expressed the view that a person should ideally report breaches to the FWO.
Of course, if there are professional standards, accountants and bookkeepers should not breach those standards.
Equally however, there may be obligations such as duties to act honestly and lawfully or to assist clients to comply with their obligations placed on accountants and bookkeepers.
Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.