Fair Work Five: Ineffective Governance and Systems

Recently, Tanda released the “Fair Work Five” Webinar, which discusses the top five reasons businesses are self-disclosing underpayments to the Australian Fair Work Ombudsman.

As part of the series, Tanda is also releasing articles on each of the five issues.

This final piece will focus on a new issue that Fair Work has identified – ineffective governance and systems.

Wage Underpayment

The reason the Fair Work Ombudsman is so interested in governance is simple – poor governance often leads to Australian employees being underpaid. Wage theft is the Ombudsman’s top concern, and through compliance action it has recovered hundreds of millions of dollars in the last financial year alone.

Fair Work is ramping up compliance action in the wake of the Covid pandemic. Typically, the Ombudsman targets businesses with poor or weak governance systems, for example those without a digital record-keeping system. For a comprehensive breakdown on how Fair Work targets business, read Tanda’s guide on the issue.

The Importance of Governance

Fair Work defines ‘ineffective governance and systems’ as having a “decentralised and ad hoc approach to managing payroll within an organisation”, and gives some further guidance on having weak governance and systems.

In its annual report, the Fair Work Ombudsman defines having ineffective systems as “failing to invest in payroll and/or workplace relations expertise when setting up payroll systems or implementing pay rules for new/changed entitlements”.

This definition also reflects Fair Work’s attitude towards compliance – typically, the Ombudsman seeks to target businesses that have obvious flaws in their compliance systems.

Likewise, Fair Work has a similar definition for governance. It’s defined as a “lack of governance and compliance policies or lack of assurance mechanisms by Boards and senior leaders, to treat wages compliance as a significant compliance risk”.

Staying Compliant

Tanda recommends taking a vigilant and conscientious approach towards governance to stay on the right side of the law. Being diligent and taking risk seriously is the first step toward being compliant. With this in mind, there are also three basic steps to take which will strengthen your businesses governance and systems.

Reduce Risk

Reducing systemic risks is one of the most important things to improve governance and systems. Adopting a risk management hierarchy similar to one used for workplace health and safety hazards, is a good idea. The risk management hierarchy focuses on a variety of methods for reducing overall risks – from In this way, risks are eliminated if possible or substituted for a smaller risk. Different controls for risk can also be used – from ‘engineering’ controls like using automated, high powered technology, to administrative controls, like regular reviews and oversight.

Use Technology

Modern payroll and workforce management software can significantly reduce the risk of human error in your Australian business. Moving from a paper based system to a digital operation, the risks of storing and entering data can be eliminated entirely. Good technology will also come with built in compliance for Australian laws, reducing the risk of misinterpreting the rules too.

Train Staff

While governance and systems can be augmented by automated technology, it’s important to have human oversight. There is ultimately no substitute for having well trained staff in your business. Being able to spot potential compliance issues is important. Having well trained staff will allow you to best utilise modern technology with competent oversight. Tapping into opinions independent of the business is also a good idea.