Employer obligations and the CFO
16 August 2022 | Minutes to read: 5

Employer obligations and the CFO

By Cameron Johnstone

In May 2022, the Australian Labor Party (ALP) formed a majority federal government, flagging significant changes aimed at Australia’s employment, industrial relations and workplace safety landscape. The minimum wage was increased by 5.2% to counter the rising cost of living and the ALP announced it’s Secure Australian Jobs Plan which, if passed, will introduce sweeping changes to employer obligations and workplace laws.

Why is this important for CFOs? Because the CFO mandate is increasingly responsible for ensuring compliance with human relations and employment obligations, including superannuation laws, payroll tax, dismissal laws, and workplace health and safety. In addition, the CFO is sometimes required to consider policies to attract and retain staff, maintain a certain culture, and protect business intellectual property through confidentiality agreements. The new and imminent changes could create a minefield of hazards for those CFOs without a comprehensive understanding of them. In addition, the changes will require sound processes, strong legal advice and a high-level of governance and compliance.

Below, we outline key information the CFO must be aware of now and in the coming months, as well as steps he or she can take to reduce the risk of non-compliance which could lead to legal action and penalties.

Increased focus on job security

Prime Minister Anthony Albanese’s government has announced its intention to introduce a requirement for the Fair Work Commission (FWC) to consider job security in all its decisions. This is unique as it is not currently a requirement for the FWC. Labor’s Secure Australian Jobs plan will enshrine secure work as an objective of the Fair Work Act due to the emergence or growth of new forms of casual employment such as that introduced by the gig economy.

Labor’s aim is to ensure the FWC has the capacity to intervene or inquire into all forms of work and determine what rights and obligations may or may not apply. For businesses with a large propensity for gig economy workers, this could have a significant impact.

To provide casual employees with a clearer pathway to permanent employment, Labor intends to legislate an objective test to determine whether an employee is casual. Currently, employers have the right to define someone as casual even if they work regular, predictable hours. Labor’s intention is to amend this and restore the common law definition which has been characterised as the ‘absence of a firm advance commitment as to the duration of the employee’s employment or the days or hours the employees will work’.

Labor has also proposed a cap on consecutive fixed-term contracts an employer can offer an employee for the same role to two, with a 24-month cap on the duration of those contracts.

This is similar to current law, referred to as casual conversion, which legislates that once casual workers have undertaken an ongoing pattern of employment for 12-months that is regular and systemic, they need to be offered a permanent role.

Entities that are required to abide by the rules can be penalised if they’re found to be non-compliant. Likewise, an individual can be fined for demonstrating a breach in the proposed employment standard.

It’s important to note that small business employers, that’s those with less than 15 employees, are not required to offer full-time employment to casual staff after a certain amount of time.

Steps the CFO can take to ensure compliance with casual conversion law and proposed changes to the Fair Work Act – if passed

When determining whether they will be required to offer their casuals permanent contracts, CFOs should assess the structure of their business and whether they’re a corporate entity, a small business, a partnership, or an associated entity of another entity, with a satellite office in Australia.

Where a permanent contract needs to be offered, CFOs will need to connect with HR to review contracts for the casual employees that are impacted. Fixed term contracts will need to be drawn up and systems and procedures updated.

ALP’s intention to criminalise wage theft

The Albanese government has announced its intention to protect Australian workers from wage theft – consulting with states and territories, unions and employers to develop the laws that will do so.
While wage theft has been occurring for years, it’s becoming reported more frequently and receiving more press coverage than we’ve seen before.

In many cases though, it’s still going unnoticed. Quite frequently, the payroll function doesn’t sit within the CFOs direct domain but rather with HR or an administrative function. It’s critical that these areas of the business are talking to one another.

Wage theft could become more of a risk in the ‘new normal’ with the growth of hybrid working arrangements. While an organisation might be paying a worker under an award for a certain number of hours, it’s becoming more common for employees to work overtime from home, to work weekends, and to work on public holidays. If for example an employee worked Saturdays for the month of June but wasn’t remunerated for it, the employee could claim an entitlement for underpayment.

The penalties can be dire if your organisation is found to be underpaying, with a CFO able to be found accessorily liable. Under the Fair Work Act, this type of liability can be proven if knowledge of the underpayment existed and there was a certain level of involvement.

Further, if the terms of applicable awards aren’t adhered to, organisations are at risk of investigation by the ATO or Fair Work Ombudsman.

Steps the CFO can take to ensure wage theft doesn’t occur

CFOs and their finance team should:

  • Consider a single-touch payroll systems that can manage wages and reduce the potential for human error.
  • Review employee classifications to ensure that employees are being paid according to their modern award or enterprise agreement and are designated correctly as either casual, part-time or full-time employees.
  • Review the terms of any modern awards that their employees are covered by so that they have a thorough understanding of minimum wage rates, overtime and penalty pay, and leave loading.
  • Ensure that employees are logging their hours correctly, even when employed to work standard, full-time hours, and check that annual salaries match up to time worked.
  • Consider contracting a professional firm to undertake a review of the payroll system focusing on compliance and the correct payment of an employee’s remuneration.

Where an organisation becomes aware that it has been underpaying an employee, it should act quickly to pay any monies owed and determine the correct rate going forward. CFOs should identify the cause of the error to ensure it does not happen again.

Leave entitlements

Throughout the pandemic, employees’ leave entitlements generally accrued, due in part to the restrictions placed on international and domestic travel and enforced lockdowns.

Now, with the job market in their favour, many employees are leaving their current positions, draining the cash flow of their employers who are required to pay out their leave entitlements.

In addition, annual leave liability is not just increasing by virtue but also due to wage and salary increases.

Steps the CFO can take to best manage employee leave liabilities

The most critical type of leave for an organisation to manage is annual leave.

CFOs who manage employee liabilities well are those that calculate it and set it aside in a separate (from day-to-day trading) bank account. When an employee resigns, their annual and long service leave is covered and there is no drain on cash flow.

CFOs should regularly review employee entitlements and introduce a policy to keep leave accruals, which sit as a liability on the ledger, down. For example, they could shut down the office each year for four weeks over Christmas and require employees to take annual leave on the days that aren’t public holidays. They could also cash out balances, where an employee (if employed under an enterprise agreement) has four weeks left of accrued leave.

Many of the risks we’ve covered in this article will come at a serious cost to business if not mitigated. CFOs should develop a cooperative and communicative approach with the people function of their organisation to avoid getting caught out on certain employer obligations. Regular check-ins with the HR team, staff training on HR matters, and regularly reviewing employee entitlements will go a long way to ensuring compliance with your employer obligations. To learn more about your responsibilities as an employer, contact your local William Buck adviser.

Employer obligations and the CFO

Cameron Johnstone

Read more >
Related Insights