Inquiry referral and process
On 13 November 2019, the Senate referred an inquiry into the causes, extent and effects of unlawful non-payment or underpayment of employees' remuneration by employers and measures that can be taken to address the issue, with particular reference to:
the forms of and reasons for wage theft and whether it is regarded by some businesses as 'a cost of doing business';
the cost of wage and superannuation theft to the national economy;
the best means of identifying and uncovering wage and superannuation theft, including ensuring that those exposing wage/superannuation theft are adequately protected from adverse treatment;
the taxation treatment of people whose stolen wages are later repaid to them;
whether extension of liability and supply chain measures should be introduced to drive improved compliance with wage and superannuation-related laws;
the most effective means of recovering unpaid entitlements and deterring wage and superannuation theft, including changes to the existing legal framework that would assist with recovery and deterrence;
whether Federal Government procurement practices can be modified to ensure that public contracts are only awarded to those businesses that do not engage in wage and superannuation theft; and
The committee was originally to report to the Senate by the last sitting day in June 2020. The inquiry was extended five times, partly due to the impacts of the COVID-19 pandemic, with the final extension granted on 10 February 2022 requiring the committee to report by 30 March 2022.
The committee invited submissions from a range of relevant stakeholders, with submissions closing on 6 March 2020. The committee has accepted 130 submissions to date, from a broad range of stakeholders such as unions, peak bodies and associations, academics, state governments, federal bodies, the higher education sector, and legal representatives.
While interested in hearing about individual cases and circumstances, the committee noted that it was unable to resolve or intercede in such cases. The inquiry website therefore advised that such matters be directed to the Fair Work Ombudsman (FWO), or for matters relating minimum superannuation entitlements, to the Australian Taxation Office (ATO).
In the latter half of 2020, the committee wrote to several higher education institutions publicly implicated in underpayment disputes, or that were known to have undertaken audits of staff payments, inviting them to make written submissions to the inquiry. A total of 10 submissions from higher education institutions were received from the sector in response to the committee's invitation (submissions 112–121).
Murdoch University and the University of Queensland declined to provide individual submissions on the basis that the Australian Higher Education Industry Association (AHEIA), the employer association for the sector, had made a submission on behalf of its member universities. Newcastle University and James Cook University did not take up the committee's invitation. A number of universities provided responses to claims of wage theft made by other submitters, as published on the committee's website.
The committee held the following public hearings in relation to the inquiry:
18 September 2020, Canberra—academics, workers, unions, and government departments;
10 March 2021, Sydney—workers and unions;
11 March 2021, Melbourne—workers, unions, legal firms and social advocacy groups; and
22 February 2022, Canberra—workers, unions, a superannuation fund, universities, and their associated casual staff networks.
The names of witnesses who appeared at the hearings are listed at Appendix 2.
The committee sincerely thanks all submitters and witnesses for their input to the inquiry, especially those workers who shared their personal experiences of underpayment.
Scope of the inquiry
The evidence received by the committee allowed it to investigate the following issues:
the nature and extent of underpayment;
vulnerable workers, including women, migrants, young people, international students, and First Nations people;
the impact of underpayment on workers, their families and wider society;
the regulatory and enforcement framework;
underpayment in various sectors, particularly the higher education sector.
The issues relating to underpayment of employees and insecure work have been well considered both inside and outside the Parliament.
The matters of this inquiry were somewhat overtaken with matters relating to job insecurity, including wage theft, investigated by the Senate Select Committee on Job Security (the Job Security inquiry), which was appointed by resolution of the Senate on 10 December 2020. That committee produced several interim reports and tabled its final report on 11 February 2022.
Wage theft—including its causes, extent, impacts and remedies—was also considered as part of the Senate Education and Employment References Committee inquiry into Corporate avoidance of the Fair Work Act 2009, completed in 2017, as well as that committee's 2018 inquiry into the exploitation of general and specialist cleaners working in retail chains for contracting or subcontracting cleaning companies. The Senate Economics References Committee also investigated matters relating to underpayment, the use of lead contractors, and 'phoenixing' in its inquiry into insolvency in the Australian construction industry.
Further, the committee notes that matters relating to migrant workers have also been recently considered by the Senate Standing Committee on Legal and Constitutional Affairs, which tabled their report into the Migration Amendment (Protecting Migrant Workers) Bill 2021 on 18 March 2022. This bill intends to establish criminal offences and civil penalties in relation to the intimidation of workers, prohibit sanctioned employers from employing migrant workers, and enable the Australian Border Force to issue compliance notices and enforceable undertakings for work-related breaches, amongst other things.
On 10 December 2020, the Senate referred the provisions of the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill 2020 [Provisions] to the Education and Employment Legislation Committee which reported on 12 March 2021.
The purpose of the bill among other things was to strengthen the Fair Work Act compliance and enforcement framework to address wage underpayments, ensure businesses have the confidence to hire and ensure employees receive their correct entitlements. Unfortunately, the committee observes, this portion of the bill’s amendments was unsuccessful.
Structure of the report
This first chapter of the report outlines how underpayment and wage theft are defined, the extent of the underpayment problem in Australia, as well as high-risk industries affected by underpayments. The chapter then goes on to consider the categories of wage theft—including both deliberate and unintentional underpayment—and the factors contributing to underpayment.
The remainder of this report is structured as follows:
Chapter 2—significant groups of Australians who are impacted by underpayment, as well as the impacts on their lives and wider society;
Chapter 3—the current regulatory environment;
Chapter 4—underpayments in universities;
Chapter 5—potential measures to address underpayment; and
Chapter 6—the committee's views.
There has long been reported instances of unlawful underpayment or non-payment of employee wages and entitlements—sometimes referred to as 'wage theft'—in Australia, even under the formerly centralised workplace relations system.
Historical theft of indigenous wages in Australia goes back to the 1880s, with workers or their families still waiting for appropriate reparation.
Wage theft on a broad scale is a relatively new phenomenon and creates significant problems for Australian labour market regulation. The rate of unlawful underpayment complaints and media reporting increased markedly from around 2015, with mounting evidence that wage theft practices have become widespread in the hospitality, retail, horticulture, franchise-heavy and higher education sectors.
A 2015 joint ABC-Fairfax exposé of extensive underpayments in 7-Eleven franchises drew attention to the issue, with over 3 600 workers claiming over $150 million in unpaid wages, many of them vulnerable international students.
In many industries, underpayment is deliberate and systematic, and often normalised, especially for migrant workers. Some research suggests that although many workers are aware that they are being underpaid, it is accepted as 'the norm', while for some employers it has become a 'cost of doing business' or a standard business model, impacting individuals and families. The following statement demonstrates this point:
In hospitality, exploitation has become the norm … I once complained to my boss about the overtime work. He said, 'Well, suck it up. Look around you! Everyone is working the same way. It's been like this forever'. I know my workplace rights, but I wouldn't dare to report my employer for underpayment. I know it will make no change because every hospitality business in Australia underpays workers. I am sure I will be known as someone who reported their boss to the authorities and get blacklisted. I cannot afford to never get another job in Australia.
This has led to a vicious cycle of underpayments with wider societal and economic impacts:
… where wage theft gets hold as an industry model, competition means that it forces down wages across the board, so that wage undercutting becomes widespread and normalised.
With increasing public scrutiny following numerous high-profile cases, wage theft and the operation of the Australian workplace relations framework has, as mentioned previously, become the focus of numerous government inquiries, reviews, and consultations in recent years, both at a federal and state level, with significant and wide-ranging recommendations for reform.
These inquires, alongside an increasing evidence base and plethora of media investigations, suggest that non-compliance with Australia's minimum employment laws has become pervasive, as well as 'endemic' in certain sectors, and they highlight the need for government action.
What is 'wage theft'?
There is currently no consistent working definition of 'wage theft', with other terms such as 'underpayment' or 'exploitation' also often used to describe such behaviour by employers. Broadly, wage theft is defined as:
… paying workers less than they are entitled to under Australia's workplace relations system.
Its various forms include underpaying wages, penalty rates, superannuation, overtime, commissions and entitlements such as sick, annual or carers leave; or requiring workers to repay money earned or making unauthorised deductions from employee pay.
Descriptions of wage theft usually highlight the dishonesty and the deliberate nature of this behaviour, differentiating it from instances in which employers have made genuine and unintentional mistakes.
Others contend that whether underpayment of entitlements is deliberate is irrelevant when considering its implications:
Wage underpayment may be inadvertent, but the outcome is no different as to when it is deliberate. The terms wage exploitation and wage theft are more emotive, but also apt descriptions of the problem, which in essence involves employers not complying with the minimum legal entitlements of their employees.
Some industry representatives have strongly objected to use of the term wage theft on the basis that it is misleading and inappropriate, arguing that it 'has the potential to unfairly brand every failure to correctly calculate an employee's pay as criminal'. The Australian Retailers Association (ARA) submitted that it is 'disturbed by the phraseology and tone used in framing the Terms of Reference', explaining that:
…the heavy use of emotive and loaded terms such as "theft," "stolen," "deterrence," and other formulations suggestive of serious criminal behaviour implies a level of prejudgement of, and guilt on the part of, business in general and our retail industry in particular that we reject in their entirety.
However, the probability of an inverse reality where employees deliberately conspire to work reduced hours yet take the same pay is highly improbable, as those who suffer the greatest are where power asymmetry is too well cast in the favour of the employer.
What is not paid?
Wage theft is characterised by non- or underpayment of wages, penalty rates, meals and other loadings, allowances, overtime, time off in lieu (TOIL) and, most importantly from a whole of economy point of view, superannuation, as no superannuation becomes a liability for future taxpayers covering pension payments.
Extent of underpayment
It is difficult to get any accurate assessment of the extent of unlawful underpayment of workers' entitlements because it is unlawful and not generally reported voluntarily. Further complicating this assessment is the fact that workers may not be engaged with the FWO, unions and others who may assist them, and because much of the non-compliance happens off the books—there are no records!
However, collectively a variety of sources indicate that underpayment affects thousands of workers, robbing them—and the Australian economy—of billions of dollars every year.
Fair Work Ombudsman
In 2020, the FWO reported the completion of a nationwide audit of 1,217 businesses across hospitality, domestic construction, retail, manufacturing, and administration services. The audit was established 'after data consistently showed many businesses were failing the "basics" of workplace law compliance: paying staff their correct rates, providing proper payslips, and keeping proper employment records'. The FWO recovered $1.3 million for underpaid employees, finding that hospitality was the least compliant industry—with 61 per cent of businesses audited by the FWO found to be non-compliant.
In 2020–21, the FWO found 81 per cent non-compliance across 698 workplaces, including underpayment, failure to keep adequate records and pay slip non-compliance. However, considering this figure in isolation would exaggerate the extent of underpayment given the FWO focusses its activities on industries and areas in which the greatest compliance risks are present.
In 2020–21 the FWO completed 18,696 disputes and recovered nearly $148.4 million on behalf of nearly 70,000 workers.
Superannuation underpayment estimates
For 2018–19 (the latest figures available), the ATO estimated a net gap between superannuation guarantee (SG) contributions that should have been paid and what was paid to be $2.5 billion. The ATO received 35,400 complaints about superannuation theft, resulting in over 17,000 cases, and with employers found to be compliant in just 25 per cent of cases.
As illustrated in Figure 1.1, Industry Super Australia (ISA) estimated the 2015–16 SG gap to be considerably higher than the ATO's estimate of $2.79 billion (or 4.8 per cent), suggesting on a more detailed reconciliation that it could be closer to $5.9 billion. ISA's estimate for 2018–19 was nearly $5 billion. It suggested that around one-quarter of the workforce was affected; in 2018–19, this was nearly three million people.
ISA argued that the two estimates are not inconsistent, as employees who received more than the statutory minimum SG would mask some of the underpayments, to give a net underpayment figure that was lower than actual underpayments.
Inclusive of superannuation and wages, the Australian Council of Trade Unions (ACTU), estimated that the cost to the Australian economy could be between $6 billion and $12 billion annually, with wider, long-term impacts discussed in Chapter 2.
As summarised in Figure 1.2, the McKell Institute found that on average, 60 per cent of respondents to its survey had experienced wage theft. Furthermore, up to 76 per cent of young people surveyed were affected by underpayments—with these figures likely to be underestimates. The global pandemic and economic downturn further increased the risk of employers denying employee entitlements, resulting in an uptick in requests for assistance from the FWO.
Figure 1.1: Value of total underpayments (left) and underpayments as a proportion of the total SG base (right) from 2013-14 to 2018-19
ISA, Submission 11, Attachment 1 (ISA, Super scandalous: How to fix the $5 billion scourge of unpaid super), p. 5.
Figure 1.2: Evidence of wage theft from surveys
McKell Institute, Submission 55, Attachment 1 (McKell Institute, Ending Wage Theft: Eradicating underpayment in the Australian workplace, March 2019), p. 17.
In 2020, PwC estimated that around 13 per cent of Australia's total workforce were affected by underpayment, with higher rates in certain industries such as the hospitality sector. It used FWO data to estimate the cash value of underpayment by industry, estimating it to total around $1.35 billion per year:
For industries with a high prevalence of underpayment of workers' entitlements, PwC has undertaken modelling using Fair Work Ombudsman data and estimates that there is in the order of ~$1.35 billion in underpayments per year. Sectors most at risk include construction (~$320 million), healthcare and social assistance (~$220 million), accommodation and food services (~$190 million) and retail (~$180 million). This estimate includes ~21% of the workforce in the selected industries, or ~13% of the total Australian workforce.
The National Foundation for Australian Women (NFAW) neatly summarised the difficulties associated with relying on data when identifying the extent of the problem:
… This [FWO data on recovered wages] is in fact a subset of a subset of a subset of a subset of those affected. Victims tend to be in very poor bargaining positions. Only a subset of victims of wage theft bring a complaint against their employer; only a subset of those have their complaints accepted and pursued; in only a subset of those cases do employers actually make payments (many just phoenix or rely on the prohibitive cost of enforcing orders); and in only a subset of those cases do the payments represent all that has been lost through the original wage theft.
However, as noted by Dr Stephen Clibborn, '[it] is not necessarily itself watertight. It's the best estimate that we have'.
For vulnerable workers, the proportion of workers affected can be higher. For example, the 2017 survey of over 4,000 migrant workers—Wage Theft in Australia—found that one third of participants received around half the minimum pay to which they were entitled. It found that 15 per cent of participants picking fruit and vegetables and doing farm work earned $5 an hour or less, and one third earned $10 an hour or less.
Industries with patterns of underpayment
Deliberate underpayment is usually rife in industries which are labour intensive, have a high proportion of unskilled workers, and in which insecure employment arrangements are common. Often these industries have low levels of union membership, and they tend to employ a high proportion of workers on temporary visas, or undocumented migrants. They also lend themselves to fragmented value chains which make it possible to obscure who profits from underpayments; for example, labour supply arrangements featuring outsourcing, subcontracting, or labour hire operators, or platform or on-demand work.
The FWO identified the hospitality sector, as well as large corporates, horticulture, sham contracting (including workers employed in the gig economy) and franchises as high risk, and therefore priority sectors.
In its 2020 National Compliance Monitoring report, the FWO found that the sector with the highest non-compliance was accommodation and food services (57 per cent non-compliant). The hospitality sector has the highest rates of non-compliance and in 2020–21 comprised 36 per cent of all reports.
During its 2020–21 audits the FWO found non-compliance rates of between 78 and 88 per cent in hospitality businesses and recovered over $1 million in wages for 931 workers. Hospitality sector litigations secured a further $1.8 million from non-compliant companies.
Abuses in retail have had a great deal of publicity, especially the high-profile investigation into 7-Eleven referred to above. The retail industry has featured heavily in reports of underpayments, due to error as well as deliberate, exploitative underpayments. It accounted for 14 per cent of all reports to the FWO in 2020–21.
The National Temporary Migrant Workers Survey found that eight per cent of workers said their lowest paid job was in the category shop assistant/retail job/sales, and a further two per cent said convenience store/petrol station assistant.
Historically, horticulture has also featured heavily in both FWO and academic reports of underpayment, with heavy reliance on overseas workers—nearly 70 per cent of employers utilise migrant workers. Wages are also low, with the National Temporary Migrant Workers Survey finding that for
nine per cent of those surveyed, their lowest paid job was as a fruit or vegetable picker or packer, or farm worker.
The FWO's 2018 Harvest Trail Inquiry found very high rates of non-compliance in the sector with over 55 per cent of investigations determining that workplace laws had not been met, and nearly 30 per cent of investigations entailing wage theft. The FWO recently reported that its inspectors have revisited non-compliant businesses from that inquiry and found that around 46 per cent are still operating, and still non-compliant. On a positive note, the FWO also noted that there has been 'an increase in the numbers of piece rate agreements being signed by workers, as well as improvements in record-keeping, especially among larger firms'.
As an occupation, cleaners are frequently underpaid. In 2021–22 the FWO intends to continue its compliance and enforcement focus on contract cleaning businesses, given the high proportion of vulnerable workers, including low-paid migrant workers, the prevalent use of contractors and layers of sub-contractors, and its high historical and ongoing non-compliance. As found by the National Temporary Migrant Workers Survey, nine per cent of participants named 'cleaner' as their lowest paid job.
Security workers also regularly feature in underpayment cases, possibly because the function is often outsourced, and largely managed by labour hire firms. The United Workers Union (UWU) has estimated that more than 70 per cent of security guards are being underpaid.
In October 2021, the FWO reported that 41 per cent of audited security companies were non-compliant, including contractors engaged by state governments to provide security at COVID-19 quarantine hotels in Melbourne and Sydney. Across the period 2020–21 the FWO found a non-compliance rate of 53 per cent in the sector.
Conversely, in the sector of the most educated, at least 21 of Australia's 40 universities have been implicated in the underpayment of their staff to date—primarily casual academic staff—and have been or are the subject of a FWO underpayment investigation. As highlighted earlier, due to the high rate of casualisation of the workforce, the ability to ensure that correct wages are paid without exploitation is difficult.
In 2020–21, the FWO initiated a strategy to address self-reported and media reported underpayments in Australian universities. The strategy involves engaging with government agencies and peak bodies to surface concerns about non-compliance, raising awareness of FWO resources, and encouraging universities to review and address their compliance.
As of 30 June 2021, there were 10 ongoing investigations into non-compliance in the higher education sector.
Categories of wage theft
Investigations by the committee have identified a range of categories of wage theft, with the ACTU noting that 'unfortunately, new schemes and new methods of committing wage theft emerge every day'.
Deliberate non-payment or underpayment
Arguably, the most blatant form of deliberate wage theft is non-payment; that is, workers are simply not paid any wages at all. For instance, a FWO investigation into the Baiada Group involved workers who complained of having been paid nothing for several days' work.
However, other forms of non-payment and under payment exist, including in relation to:
non or underpayment of allowances and additional rates—the most common form of deliberate underpayment, including the non-payment or underpayment of overtime, casual loadings, and penalty rates;
payment below the minimum wage or applicable award rate;
misclassification—workers are paid at permanent, part time rates instead of casual rates; workers are misclassified as trainees so they can be paid at a lower rate; or workers are paid at one level of the award but expected to complete duties at a higher level which would attract a higher pay rate;
falsification of records—in some cases employers have falsified the number of hours worked by employees to misrepresent them being paid at higher rates of pay than they were actually paid;
cash-in-hand employment—characterised by lack of employment paperwork, no payslips, and no employer income statement, below minimum rates, and lack of superannuation;
expectation to complete unpaid work—for example, by working additional time to set up or close down a job, to attend training, to complete administrative tasks, where insufficient paid time has been allowed for work to be completed, travel time where this is integral to the work, and where staff have not been permitted to take rest breaks to which they are entitled. Key sectors affected include school cleaners, higher degree research students and sessional academics in the higher education sector, as well as employees of Subway, McDonalds, and CommBank;
excessive unpaid trials—where workers must complete unreasonable unpaid work, including internships and placements, to gain experience and/or employment;
cashbacks and payments to employers—where workers are paid but employers demand a proportion of the payment back; for example, for uniforms, food, transport, visas, accommodation, till shortages, or as security. While some payments are lawful if reasonable, agreed with the worker and included in a contract of employment, other payments, including upfront payments by prospective employees are not;
non-payment of superannuation—where employers do not pay superannuation guarantee contributions, despite, in some cases, contributions being shown on pay slips;
end of employment—workers can lose unpaid wages when they are made redundant, a business ceases, or where insolvency is used strategically ('phoenixing') to avoid payments to workers; and
'sham' contracting arrangements—where workers are required to register as a business with an ABN, although by all practical criteria they are an employee (see below).
The extent of underpayment experienced across the various forms of wage theft is illustrated by Figure 1.3.
Many of the corporate self-reported underpayment cases reported over recent years have been attributed to administrative error. Generally, companies have self-reported to the FWO when they have discovered underpayments, and back pay has been made to affected workers, along with interest and superannuation, in consultation with the regulator.
The most common type of self-reported underpayment has been where a management contract has defined a total salary, and it has later been found not to have paid as much as if the worker had stayed on the relevant award and been paid per hour, with additional hours paid at higher rates or as overtime.
Major supermarkets are alleged to have used this method, as well as other practices, resulting in Woolworths underpaying its staff at least $571 million and Coles Supermarkets around $115.2 million.
Figure 1.3: Prevalence of wage theft by category
McKell Institute, Submission 55, Attachment 1 (McKell Institute, Ending Wage Theft: Eradicating underpayment in the Australian workplace, March 2019), p. 17.
Other forms of underpayment to which workers have been subject may not be unlawful, as follows:
where enterprise agreements have been found to be invalid, but it would not have been illegal for the employer to pay according to the agreement that was registered at the time;
where legacy agreements (or 'zombie' agreements) are still in force and may result in very low, but not unlawful, rates of pay;
where enterprise agreements that have passed their normal expiry date have been terminated, placing workers on the relevant industry award with lower terms and conditions, and disadvantaging workers in enterprise bargaining processes; and
where employees are not covered by an award. For example, newly graduated lawyers were covered by an award for their first year, but not in subsequent years. They routinely worked very long, unrecorded hours, for low salaries. This did not constitute unlawful underpayment unless the pay rates were below the minimum wage.
In the past, wage theft was considered to be limited to small to medium-sized enterprises (SMEs)—with over 99 per cent of Australian businesses classified as SMEs—commonly without access to the specialist human resources, or payroll systems and advice available to larger enterprises.
However, underpayments by large, high-profile corporate employers totalling hundreds of millions of dollars, and affecting thousands of employees over many years have become a significant issue of public concern. Some recent high-profile examples of corporate underpayments include household names:
Bupa—according to a review of its payroll systems, it underpaid more than a third of its workforce (approximately 18 000 current and former staff) by as much as $75 million since 2014;
Coles—underpaid about 600 staff some $20 million over six years; although the FWO has claimed that Coles' remediation program has 'significantly underestimated' amounts owed. On 1 December 2021 the FWO commenced Federal Court of Australia (FCA) proceedings claiming that underpayments between 2017 and 2020 totalled closer to $115.2 million;
Wesfarmers—reported staff underpayments totalling $30.1 million across its companies, including a $9 million underpayment of staff at Target and a $4 million underpayment of superannuation entitlements to Bunnings' staff;
Qantas—self-disclosed the underpayment of 638 employees over eight years, totalling $7.1 million;
National Australia Bank—estimated that thousands of staff had been underpaid to the value of $128 million to 2012;
CommBank—revealed staff underpayments totalling some $53 million, affecting 41 000 current and former staff and dating back to 2010;
Super Retail Group—the parent company of SuperCheap Auto, Rebel Sport and BCF, has set aside around $43 million to compensate retail store managers for underpayment of overtime and other allowances over six years; and
Woolworths Group—originally identified as underpaying approximately 5700 salaried staff $427 million over nine years, with a further 155 000 workers underpaid $144 million over the last three years. The total of underpayments to date is $571 million, with the potential for the ongoing review to discover further underpayments.
Underpayments are not limited to the private sector, with the not-for-profit and government sectors also affected; for instance, the Australian Red Cross admitted to underpaying staff $20 million.
The Australian Government sector has seen underpayments across a number of agencies including the Australian Broadcasting Corporation (ABC) which admitted to underpaying 2500 casual staff over a six-year period and set aside $23 million for repayments. Other government agencies affected include Aboriginal Hostels Limited, the National Library of Australia, the Department of Social Services, the Department of Finance, and the Department of Home Affairs.
The FWO has expressed its disappointment and frustration at the mounting number of large-scale corporate underpayments, and the impact this has had on other aspects of their work such as assisting small businesses and vulnerable workers.
The recent increase in self-disclosed underpayments amongst prominent corporate employers has emphasised the widespread nature of wage theft in Australia and forces consideration of its impacts on both individuals and Australian society.
Factors contributing to underpayment
Bearing in mind the two categories of wage theft outlined earlier—deliberate or negligent underpayment—there are a number of factors which make it possible for employers to exploit workers and allow errors to remain undetected, with the more vulnerable groups of workers susceptible to both forms of underpayment:
Industrial relations reforms over the last 20 years have shifted the balance of power in favour of employers over employee, moving from a centralised industrial system to a system of individual rights.
Insecure work has become more common.
There are higher proportions of participation in the workforce by vulnerable workers.
Union membership and the power of unions has declined.
Complex employment relationships and supply chains make it possible to obscure employee status and hide the beneficiaries of underpayments.
Changes in ethical outlooks have seen broader tolerance of exploitation.
Industrial relations changes shift the balance of power
In a simple economic model, it is assumed that businesses structure their operations so as to minimise operating costs and maximise profits. Other input costs such as rent and materials are largely fixed, while the costs of labour are less so and can be minimised.
Since Federation, Australia has relied on labour laws and unionisation to balance the power of employers and employees. Moves to enterprise bargaining in the 1990s, and individual agreements under WorkChoices legislation in 2005, represented a fundamental shift from centralised industrial relations to enterprise-based or individual arrangements.
In 1990, nearly 80 per cent of workers had their wages set by awards. This has subsequently dropped sharply, with figures from the Australian Bureau of Statistics (ABS) showing that since 2012, the percentage of workers employed under an award or collective agreement has fallen to around 59 per cent, with employees on individual arrangements resting between 36 and 39 per cent, and the remainder of employees being owner managers of incorporated enterprises.
Enforcement is increasingly reliant on individuals pursuing cases, with responsibility for policing resting principally on the FWO, creating resourcing challenges. Ms Natalie James, former FWO, observed:
[Entrenched non-compliance with the Fair Work Act] is an industry-wide problem and it needs an industry-wide response. There are over 50,000 cafes, restaurants and takeaway outlets in Australia and the FWO cannot fix this one café at a time.
Widespread underpayments and other unfavourable work conditions indicate there is no longer a balance of power.
However, recent unfolding events including wage theft litigations, the COVID-19 pandemic, and the #MeToo movement have the potential to shift the balance in favour of employees. Media reports suggest that employees are growing in power, and that they are demanding conditions that better mesh with their values and personal lives. Whether this effect will be prolonged, and go so far as to reduce wage theft, remains uncertain.
Changing attitudes to wage theft
Hand-in-hand with industrial changes, some have argued that wage theft has evolved from a belief in the priority of markets. In this context setting wages at the 'going rate'—rather than minimum or award rates—is merely an extension of this thinking. Ms James observed:
It is a failure not only of legal responsibility, but moral and ethical leadership, for large corporates to seek to 'contract out' the wages and conditions of its workforce without ensuring good governance and compliance.
Evidence provided by Mr Josh Bornstein, Principal Lawyer at Maurice Blackburn Lawyers, appears to support this view:
… sometimes a graph comes along and hits you in the forehead, and late last year Alan Kohler on ABC News presented one of his graphs, which was to show the source of share market gains over two periods … In the second period, between the late 80s until two or three years ago, the graph was radically different … it showed economic growth was responsible for only a minority of shareholder gains. The largest contributor to economic growth over the last 35 years was transfer from wages. In other words, what we've seen happen is business has fundamentally changed its behaviour and sought to maximise its profit by cost cutting and wage suppression—an entirely different approach to running a business and to making a buck.
Workers, too, may have internalised this market ideology, with one worker submitting:
We're brainwashed into thinking bosses can't afford to pay us.
Similarly, a survey commissioned by the FWO in 2016 found substantial numbers of migrant workers felt they had nothing to complain about, even when they knew they were being paid below minimum rates, because they felt lucky to have a job.
The role of unions
Unions used to play a greater role in protecting workers, at both a systemic and an individual level, influencing the setting and enforcing of minimum standards across broad occupations. Unions had standing to contest potential awards breaches, so enforcement did not depend on an individual assertion of rights:
If we think about the role of the inspector, the inspectorate has been a recently modern feature. It is unions that have historically done the work in terms of compliance, and one of the reasons that we think that noncompliance and wage theft are on the rise is that they're directly related to the fact that unions and their officials have had the rights to do that very important compliance work restricted.
… dismantling an effective system of co-regulation of employment relations and replacing it with a command-and-control system. That is, we previously relied strongly on unions to support the state in setting and enforcing minimum wages. We now require the Fair Work Ombudsman to be the primary enforcer, but it is not adequately resourced to do that job. It receives less government funding now than it did 10 years ago, and that funding has reduced on a per-worker basis also.
In sum, government policies have simultaneously increased the supply of vulnerable labour and reduced the enforcement of employment laws.
But, more recently, the institutional power of unions has declined: unions have fewer permissions to enter workplaces and inspect records, they have less representation on bodies which advise governments, and they have no special rights to bargain for pay and conditions at an enterprise level. The ACTU explained:
… we know that unions' rights to enter workplaces have been restricted over the last two decades. That means that unions have limited rights on which they can enter workplaces. They can enter workplaces to hold discussions with workers and they can enter workplaces to conduct investigations in relation to suspected contraventions. However, our ability to obtain the evidence is also limited from where it was. We do have rights to seek member records, but ultimately it requires the member to disclose who they are.
Ms Gooding from the NTEU also told the committee that identifying and addressing wage theft is difficult, with unions unable to do a standard time-and-wages check on both members and non-members, with current arrangements requiring them to disclose the identity of the worker, opening them to adverse actions and making underpaid workers less likely to come forward.
At the same time, union membership has declined dramatically, with direct correlations between low union membership and sectors commonly engaged in wage theft (and other non-compliance). Dr Clibborn told the committee:
So, certainly, the reduction in union density over the last number of decades, combined with the limits on their ability to enter the workplace and be part of the enforcement solution, has contributed to the current rise in wage theft and other employer noncompliance.
Unions are therefore less likely to be asked for advice, or be involved in workplaces, and less likely to identify non-compliance and abuses, arguably leading to higher instances of wage theft as well as increasing the workload of the FWO.
Complex employment relationships and supply chains
The increasingly complex employment relationships, contracting, and supply chains are making it possible for the entity which ultimately benefits from a worker—and their underpayment—to hide or 'pass the buck'.
There are various ways of obscuring these relationships, including by utilising outsourcing, franchising, labour hire contractors and multiple layers of sub-contracting, complex corporate arrangements, and by using independent contractors. Lack of appropriate governance from the top merely complicates these arrangements further.
The FWO's Harvest Trail Inquiry report observed:
Since 2015, the FWO has conducted several inquiries into labour supply chain arrangements, including the contracting of trolley collection, cleaning and poultry processing services. These inquiries have generally found that ineffective supply chain governance contributes to a culture of non-compliance by contractors throughout the labour supply chain.
The rise in insecure work and its impacts have been explored extensively by the Job security inquiry, with the report concluding that 'the committee finds that insecure and precarious forms of work have increased and are increasing'.
That inquiry found that most forms of insecure work—casual contracts, part time work, fixed term contracts, on-demand and independent contractors—have increased over the last 30 years, with vulnerable workers particularly impacted.
While business has argued this reflects the changing needs of companies and the economy, and improved flexibility, particularly as more women have entered the workforce, others have contended that this flexibility is one-sided in favour of employers. Per Capita told the Job Insecurity inquiry:
'Flexibility' is a term used to describe insecure work conditions: it is often portrayed as offering benefits to workers and employers equally, but in practice, the concept is sold to employers by labour hire companies as a way to reduce the 'ongoing burden of fixed costs'…it is of far greater benefit to business owners than it is to workers.
The Australia Worker's Union agreed, telling this inquiry that insecure arrangements are having a detrimental effect:
It is now clear that (a) non-direct-hire employment is increasingly prevalent and normalised across industry and (b) such arrangements have led to increasing job insecurity, worker exploitation and non-compliance with minimum standards.
Labour demand, supply and constitution
Labour demand, supply and constitution have changed considerably over the last 40 to 50 years, with reduced labour demand (and higher supply) potentially linked to lower wages and wage theft, particularly in certain high-risk sectors where underpayment has become embedded. These effects have been particularly felt given other changes in the industrial relations landscape, and to the nature of work and productivity.
Current ABS figures show that there is an ample supply of labour with workforce participation rates hovering around 66 per cent for the resident population, compared with 62 per cent in 1978 when the series began. The expansion in the workforce is due to a large number of factors, with increased participation by vulnerable workers.
Figures show increased workforce participation by women (from 44 per cent to 61 per cent over the period), and increased participation of people over 65, where the employment to population ratio has gone from seven percent to 15 per cent.
Additionally, there are approximately 1.7 million migrants with work rights on various temporary visas—although this is a significant drop from December 2019, just prior to the spread of COVID-19 in Australia, when there were around 2.4 million visa holders.
Figures for December 2021 show that one of the biggest groups of temporary migrant workers is international students, of whom there are about 316,000 in Australia (down from nearly 613,000 in March 2019 border closures). Most of these visa holders are entitled to work up to 20 hours a week during the academic term, and unlimited hours outside term.
There are about 19,300 working holiday makers (down from 149,000 in March 2019) and approximately 333,400 holders of bridging visas. The Seasonal Worker Programme accounted for around 15,200 workers in December 2021; considerably higher than September 2020 when it troughed at around 3,300.
Temporary migration (rather than permanent migration) is fairly new to Australia, with figures showing that the number of temporary migrant workers has tripled since the late 1990s, as many hope for permanent residency and ultimately citizenship. These migrants are now treated more like guest workers.
Migration has therefore been a source of a large increases in labour supply. Estimates vary, but migrant workers are thought to constitute between six per cent and 12 per cent of the Australian workforce.
Migrants also tend to be young. Even in 2010, workers on temporary visas (not including New Zealanders) made up around one-fifth of the total labour force aged between 20 and 24. Additionally, students may be concentrated in university towns. For instance, one estimate suggests that students make up 10 per cent of Wollongong's population, and thus a significant proportion of that city's labour force.
Chapter 2 considers who is affected by wage theft and how it impacts on their lives, as well as our wider society.