Accountants & Bookkeepers liable for client’s underpayment of wages

The first respondent operated a restaurant, and engaged the accountancy firm to provide bookkeeping services, which included calculating employee wages and producing wage records through MYOB. The restaurant operators had a practice of paying a flat rate of pay for all hours worked.

In early 2014, the restaurant was the subject of a targeted audit by the Fair Work Ombudsman.

Findings of contraventions of the relevant award were made against the restaurant and the accountants were notified.  The accountants participated in the audit by providing relevant wages information and calculations to a workplace relations specialist, who corresponded with the Fair Work Ombudsman on behalf of the restaurant in relation to underpayments that were discovered through the audit process.  The accountants were provided with correspondence from the Fair Work Ombudsman through the audit process, and with a copy of the audit findings document.

Further underpayments by the restaurant were discovered towards the end of 2014, following a complaint to the FWO by one of the employees.  The underpayments discovered following the complaint were then the subject of prosecution by the FWO, and then hearings before the Court.

During the hearing that specifically examined the accessorial liability of the firm, the accountants agreed that the correspondence received through the audit in early 2014 set out important terms of the Award that applied to the restaurant’s employees, including that the award provided for ordinary hours, penalty rates, overtime rates and allowances.  The accountants agreed that as a result of the audit they knew how to check the correct award rates.

Although the accountants denied that they were responsible for setting the correct pay rates, they agreed that it was inevitable that because of the way that MYOB operated, that if the rates in MYOB were not set correctly (by the accountants), that underpayment of employees would likely follow.

The accountants ran an argument of ignorance, basically claiming that:

• it did not know the employee worked for the first respondent;
• it did not know his duties;
• it did not know whether the award applied to the employee; and
• it did not know what the minimum entitlements payable to this employee were.

The accountants essentially claimed that it was its duty to input the data into MYOB, and that it was the responsibility of the first respondent to ensure that it met its obligations to the employee for minimum entitlements to be paid.

The Court was highly critical of the evidence provided by the three witnesses who gave evidence on behalf of the accountants.

By way of summary, the Court found:

• The accountants had received advice from a so-called workplace relations expert as to the restaurant’s obligations under the Fair Work Act 2009 and the relevant award;
• The accountants provided payroll advices for the employees;
• The accountants were aware of the award and that it contained clauses relating to penalty rates;
• That even the most basic query would have informed the accountants that the employee was not receiving the minimum entitlements under the award.

The judge’s comments provide some insight into his conclusion:

[The firm] admitted its MYOB system contained hourly rates of pay for the Employee and the system [the firm] operated and had responsibility for (try as they might to deny it) produced payroll records and pay slips for the Employee.

On that basis it is risible to suggest that even the most basic query would not have revealed to [the firm] that the Employee was not receiving: the relevant minimum hourly rate in accordance with clauses 13.2 and 17 of the Award; evening loading in accordance with clause 25.5(a)(i) of the Award; Saturday loading in accordance with clause 25.5(b) of the Award; Sunday loading in accordance with clause 25.5(c)(ii) of the Award; public holiday penalty rates in accordance with clause 30.3 of the Award; rest and meal breaks in accordance with clause 27.1 of the Award (but only in relation to the period 15 December to 31 December 2014); and clothing allowance in accordance with clause 19.2(b)(i) of the Award.[20]

The first respondent’s pay rate sheets were sent to [the firm]. Given what I am satisfied was [the director’s] control over [the firm’s] operations (i.e. that at all times it was acting under and at his sole direction), it is reasonable to infer (and I do so infer) that those matters in paragraph [91] would have come to his attention had he not shut his mind. [The director] knew, as a result of the 2014 audit, of the concerns about the first respondent’s compliance with its obligations under the Award and that the flat rate payments he was aware were being paid did not comply with the Award. Contrary to the impression sought to be cast over the operation of [the firm’s] services to the first respondent in submissions, I am satisfied that [the director] was the directing mind and will of [the firm] and was, if he had not shut his eyes, aware of the matters in paragraph [91].

The Judge confirmed that the accountants were accessorily liable for the underpayments by the restaurant, stating that “I am satisfied the evidence demonstrates [the firm] (through [the director]) deliberately shut its eyes to what was going in a manner that amounted to connivance in the contraventions by the first respondent.”

There will now most likely be a penalty hearing where penalties are likely to be imposed on all contravening parties, including the accounting firm.

Lessons for advisors

Clearly, this decision is a wake-up call for those advisors providing professional advice to employers about wage related matters, and also those undertaking bookkeeping and payroll services for businesses.

The ability of the Fair Work Ombudsman to now look deeper into the cause of underpayments and take steps against those providing professional services to the underpaying entity, where they have or should have knowledge of the correct pay rates, will alarm those who have previously believed sole liability for any contraventions in terms of underpayment of wages lay with the employer.

This decision highlights the need for professional advisors, bookkeepers and providers of payroll services to take an active role in ensuring that their clients are paying their employees correctly. This is not an easy task, as many of the modern awards contain clauses which are difficult to interpret and so determining the correct award, the correct classification and the correct pay rates can be a complicated process.  In such instances, it is recommended that professional advisors and other service providers direct their clients to seek appropriate legal advice on such matters.

Employment law specialists can assist professional advisors and other service providers with practical employment law advice, including the following types of issues:

• How to correctly classify full-time, part-time and casual employees;
• Identifying the correct award and classification for employees;
• Identifying when penalty rates, overtime rates and allowances apply, and how to apply them;
• Assisting with advice in relation to paying a flat rate and offsetting;
• Assistance with calculating award compliant hourly rates and salaries;
• Advice in relation to record keeping requirements;
• Advice in relation to the benefits of employment contracts and policies, and the drafting of these documents;
• Advice in relation to the performance management of employees;
• Advice in relation to termination of employment and the associated risks;
• Advice in relation to post employment protections and employee obligations post-employment;
• Advice relating to distinguishing between employees and contractors (from an employment law perspective) and the risks of getting it wrong.

By obtaining advice before you take action, you can ensure that your clients are meeting their obligations and limiting their risks of drawing the unwanted attention of the Fair Work Ombudsman and other employee representatives.

Accountancy firms should protect themselves firstly through awareness of the reach of the powers under the Fair Work Act and as a result the Fair Work Ombudsman, and secondly strongly advising their clients to seek independent advice.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.