Who is underpaid?
2.1
Any workers at any level can be underpaid. In general, however, there is a 'relationship between low skill levels and underpayment' and underpayment is most common where workers have the least power. In a situation of strong labour supply, workers with low skill levels, and who are therefore considered easily replaceable, are vulnerable.
2.2
There is a direct link between insecure work and underpayment, reflecting the power imbalance between employers and worker, and workers' fear of speaking out or seeking redress for fear of losing their jobs:
… workers are very anxious about raising issues about their employment. If we think about the fact that one in three workers is in some form of insecure work, so a casual worker, there's a direct relationship between raising your hand to outline a wage theft matter and whether you're going to get a shift next week. There are general protection provisions but they are woefully inadequate.
2.3
This was a common theme in evidence received by the committee, with Ms Julien Gibson stating:
Whenever I asked for my entitlements, the typical response was, 'Everyone is replaceable' and 'Do you want this job or not?' The last straw for me was when I was sexually harassed. I left my dream job. It turned into my nightmare.
2.4
The committee also heard that the COVID-19 pandemic has magnified the impacts of underpayment of workers, given higher job losses, lack of access to social payments by temporary migrant workers, and the exclusion of temporary migrant workers, international students, and university staff from benefitting from JobSeeker and JobKeeper payments. Dr Tess Hardy explained that those exclusions:
… are profound, because then employees are absolutely desperate for work, and that desperation drives this inability to complain and also a willingness to accept conditions well below the legal minimum. It really blows apart, I think, the safety net that is in existence.
2.5
Vulnerable workers are at higher risk of exploitation due to a range of factors including gender, age, disability, ethnic or cultural background and language barriers, as discussed further below.
2.6
Certain industries employ a high proportion of vulnerable workers for which underpayment is significant, such as the hospitality, child, aged and disability care, cleaning and accommodation services, and higher education sectors.
2.7
For workers falling into more than one vulnerable category the impacts are magnified. The categories described below represent significant populations of vulnerable workers but are by no means exclusive.
Women
2.8
Women are vulnerable to wage theft due to higher rates of part time work casualisation and the higher rates of casualisation in the industries in which they are employed. This includes the healthcare and social assistance, accommodation and food services, and retail sectors. Women are already marginalised in equitable wage rates and generally have considerably less or no superannuation at the end of their working life.
2.9
There is some evidence that the gender pay gap gets bigger as incomes get smaller, disproportionally further disadvantaging women.
Migrant workers
2.10
Migrant workers, including international students, are commonly subject to underpayment, with a recent report finding that 65 per cent of people in this category had experienced wage theft, because the power imbalance between employers and works is greater. The FWO notes that they are often vulnerable to coercion and exploitation:
The over-representation of migrant workers in our disputes potentially reflects their unique situation: being new to the Australian labour market, not having baseline knowledge about workplace rights and entitlements, and potentially experiencing language and cultural barriers. Some migrant workers may also be reluctant to speak with public officials and may be concerned about their visa status if they raise issues. These factors can make migrant workers particularly vulnerable to exploitative practices from unscrupulous employers.
2.11
In addition to the factors above, the Law Council further submitted that migrant workers are more likely to suffer from trauma and fear of authorities, fear of deportation, job loss, and financial constraints. Many migrant workers, especially working in the horticulture sector, are located in regional, rural, and remote locations where it is more difficult for them to seek assistance.
2.12
Workers whose temporary visas depend on their employment status are inherently vulnerable to their employers and may depend on their support. An international student who fears that their employer will report they have worked more than the allowed 20 hours a week stands to lose their visa, enrolment, and the fees and study they might already have put into a degree. They are less likely to know their workplace rights and challenge their employer about rates of pay because of language and cultural barriers.
2.13
It should be noted that almost all workplaces that employ temporary migrant workers also employ local labour, and they are equally at risk of exploitation. However, certain industries have large participation rates for vulnerable workers—temporary migrant workers in particular—such as the horticulture, hospitality, cleaning and security sectors (as discussed below).
Young workers
2.14
Young workers tend to have easily replaceable skills, higher rates of casual employment, lower rates of union membership, and lower awareness of their workplace rights and obligations, making them vulnerable to underpayment.
2.15
Younger workers also need to gain work experience and, as a result, may be prepared to accept less than minimum conditions for fear of losing work. High unemployment rates in regional areas may also cause younger workers to accept work in unfavourable conditions.
2.16
Ms Felicity Sowerbutts from the Young Workers Centre reported to the committee that 'about 65 per cent of the young workers that we've assisted over the last five years have brought wage theft issues to our attention. That's how rife it is…'
2.17
Mr Shirley Jackson, Economist with Per Capita thought that young people need businesses to do more, with the support of government:
You can't blame a drowning person for grasping at anything. Young people are facing wide-scale unemployment, underemployment, large competition for entry level jobs, declining graduate positions and increasing time spent in insecure industries—much longer than they need to. We can't blame them for not being aware and not taking it into their own hands to go out and find out exactly what all the laws are. That is a responsibility that should always be on business.
First Nations people
2.18
Aboriginal and Torres Strait Island people are also vulnerable to wage theft for several reasons.
2.19
The Northern Territory Working Women's Centre (NTWWC) reported that around six per cent of its enquiries relate to underpayment—commonly non-payment or underpayment of hourly rates, penalty rates and overtime, applying the wrong award or misclassification. The Centre highlighted key issues concerning its clients, noting that:
… it is more challenging for these women to establish what their rights are and where these rights comes [sic] from, due to difficulty interpreting legislation and Modern Awards and difficulty accessing services that can assist in this process. Secondly, it is more challenging for these women to enforce their rights as a result of discrimination, lack of skills or confidence advocating for their rights to their employer and again difficulty accessing services to assist.
Regional, rural, and remote workers
2.20
Workers in regional areas may also be vulnerable as a result of fewer employment opportunities, generally higher rates of unemployment, and limited access to support services. Furthermore, regional horticultural and mining sectors, sectors are known respectively for the underpayment and increasing casualisation of its workforce.
Effects of underpayment
Impacts on people and their families
2.21
People who are underpaid—particularly low-paid workers—have less money to spend on things they need like 'housing, utilities, groceries and other everyday essentials', little scope to purchase 'extras' and luxuries, and less opportunity to plan for the future and save.
2.22
Dr Hayley Singer told the committee:
I have been in that position … when you put in a time card and it's rejected, and you know that you will not be able to pay your rent or you do not know where your money is coming from for the next fortnight. It is a really scary proposition.
2.23
Mr Trent Whitehand-Willick told the committee of his experiences and the longer-term impacts:
I've worked as a casual bartender in the hospitality industry for eight years and have been paid correctly by one employer out of six. I spent over three years working for one of Australia's largest hospitality companies, with neither casual loading nor penalties. Whenever I queried this, I was gaslit and made to feel undeserving of legal pay. I worked without receiving breaks or overtime pay and was forced to comply. I was asked, 'Do I want to let down my team?' I was told that other people would happily take the hours and that if I wanted to work less it could be arranged. 'It's the same everywhere,' they said. In my experience, they're not wrong. We most often have no option but to accept illegal pay. I find this even more so now in the COVID-19 economy, which gives hospitality employers a greater incentive to underpay. This gives me an impossible choice: accept pay that I know is not legal or remain on JobSeeker for the foreseeable future.
2.24
Ms Julien Gibson also told the committee of the significance of the underpayment and subsequent recovery of unpaid wages:
For years every hospitality job was the same. After speaking with former colleagues, industry friends and union mates, we concluded it would seem that hospitality was never going to change …
This is what you have to choose between as a chef: either you forfeit your self-respect and work for below the award or you forfeit your rights and entitlements and safety nets.
After a decade of experiencing wage theft, it took my fellow workmates and I to come together to fight back. I got back just over $18,000 for only two years out of my career. That money has been life-changing. It might not seem like much to you, but a safety net meant I could plan my future and make healthier choices for myself, which is something that chefs rarely have the opportunity to do.
…
We are tired and battle-weary from decades of fighting for our basic rights and entitlements. We've suffered gaslighting, wage stagnation and exploitation …
…
My experiences are not unique.
2.25
Underpayment particularly impacts low-income workers and any underpayment is likely to result in some degree of hardship. In one case in the Federal Circuit and Family Court (FCFCA):
…the court found the worker at the Ajisen Ramen restaurant had been underpaid $9,616, from May and October 2016. The underpayments left the worker struggling to meet living expenses despite working four to six days per week, the Ombudsman said. She was back-paid in August 2017.
2.26
In cases of extreme underpayment, workers may live in conditions of dire poverty. The Australian Broadcasting Corporation quoted a farm worker:
'I was working 6:00am to 6:00pm driving tractors and eating bread and cordial for breakfast and lunch, and boiled mince meat for dinner. I lived in the shed with a dog,' he said.
2.27
Poverty also makes it harder for vulnerable people—predominantly women and in particular Aboriginal and Torres Strait Islander women—to leave violent relationships and access assistance, extending and compounding the effects of domestic violence.
2.28
Underpayment causes financial stress with impacts on physical and mental health. Working long hours and/or multiple jobs leaves workers with less time to spend with family and friends and access support networks, exacerbating mental health problems. In the longer term this can lead to social disconnection, with changed attitudes to training, education, employment, and even to the rule of law, given:
… getting people to do work and either not paying them at all or very clearly paying them trainee rates … seems to me to be really sinister. You're taking advantage of someone who wants to pursue a good working life by making them give free labour to you so that you can benefit and turn a profit. The same thing goes for unpaid overtime and things like that. … We value the time that we have away from work just as much as the time at work. It's about eight hours of work, but then also eight hours of rest and recreation. As a community, when we won those laws, we recognised that workers have the absolute right to enjoy their lives out of work. That's why we have these payments to compensate people for their very precious time.
2.29
There is a particular conflict for students. Furthermore, because underpayment often occurs alongside other forms of abuse it may lead to non-completion of apprenticeships, traineeships or other courses of study.
2.30
The McKell Institute and Maurice Blackburn Lawyers observed that the impacts of wage theft go beyond the loss of income, to people's sense of self, with victims experiencing a range of impacts from fear, shame and embarrassment, isolation, anger and frustration, and desperation.
A common theme of most of these [wage theft] stories was anxiety and outright fear. Anxiety because people were concerned to maintain a regular income from their employment, even if they were a victim of theft. Fear, because employers often used harassment, bullying, and other threats to ensure that their wage theft business practice continued.
2.32
Mr Trent Whitehand-Willick shared his experiences:
The overwhelming message that is sent to me is that we the employees are an unvalued means to financial success, which is reinforced by the government's tacit acceptance of this culture. The hospitality industry's inadequate regulation makes me feel like I exist in a political economy that views me as a means to an end and not worthy of being an equal stakeholder in the economy.
2.33
Witness 1 also told the committee about the ongoing impacts on her life:
Because I have missed out on over three years of super, I will potentially have to work longer into the future so that I have enough money to retire comfortably. When I found out that my employer wasn't paying my super, I felt angry and betrayed as we were unaware for some months that this was occurring, as our payslips still indicated that we were receiving super. As an individual worker, I didn't know how I could take steps to recover my super. I tried to get assistance from the ATO [Australian Taxation Office], but even when they performed an investigation they weren't able to provide me with much information about how the super could be recovered … I feel betrayed by my employer and failed by the ATO for allowing this to happen for such a long time. I'm so frustrated that after such a long process it seems unlikely I'm ever going to see the super that's owed to me.
2.34
The former Fair Work Ombudsman, Ms Natalie James, suggested that employer abuse, and underpayment in particular, has contributed to the growth of the gig economy. Employees would prefer 'being their own boss', however exploitative the conditions, to underpayment and disrespect.
2.35
A lower income may mean an individual must work more hours and often multiple jobs to make ends meet. This also puts workers at serious risk of workplace injury, or endangering the safety of others.
2.36
If underpayments are detected and restitution ordered, it can have an impact on an individual's income tested welfare benefits, possibly retrospectively generating overpayments which have to be paid back. Despite the ATO advising of some lump sum payment protections for reimbursements, the committee heard of potential impacts relating to higher taxation amounts than otherwise have been levied, as well as changes to calculations associated with withholding tax, child care subsidies, social security payments, the Medicare levy and health card benefits. Dr Kristin van Barneveld from the National Foundation for Australian Women (NFAW) said:
Well, what we're worried about is that if people end up getting a repayment of money that's owed to them they could then be exposed to changing their income in the year in which that lump sum is paid, to their detriment. We don't think—but we flag it—that the Medicare levy could be a particular issue, but it could affect family payments and a whole range of things, plus give people a potential tax burden that they otherwise shouldn't have had, or they will be taxed at a different rate than they otherwise would have been taxed at.
2.37
The Young Liberals NSW described employers that deliberately underpay their employees as 'preying on the vulnerable', going on to highlight the importance of reforming toxic culture and providing young workers with the opportunity to experience honest workplaces:
It is vital that young people experience honest workplaces; if nothing else, because they are the future leaders and future employers themselves who must learn to operate businesses with integrity…This [proper payment] is necessary for a productive society based on the rule of law and a society where individuals who work hard should be remunerated and given the opportunity to improve their lot in life.
Missing superannuation
2.38
Non- and underpayment of superannuation have adverse impacts on individuals and families, forcing them to work longer and face additional hardship, with blue collar workers particularly affected, due to:
loss of insurance cover for some members, because some disability and income protection insurance policies rely on regular contributions;
loss of income and savings for temporary migrant workers who return home; and
most significantly, reduced retirement balances, given the compounding effect of superannuation contributions.
2.39
The FSC suggests a reduction of 7.6 per cent for a typical member, while Industry Super Australia (ISA) estimates a 50 per cent difference in the superannuation balance of a person underpaid compared with a similar person who was paid. Furthermore is the impact on the Australian taxpayer of having to un-necessarily cover pension liabilities because there are no superannuation funds to support those retirees.
2.40
Two witnesses, who did not wish to use their names for fear of repercussions, told the committee about the effects of unpaid superannuation and how that fighting for superannuation entitlements had been stressful, taken a toll on their personal lives, and meant that they will now need to work longer in order to retire comfortably. Witness 1 said:
My employer's failure to pay superannuation has impacted my work and personal life greatly. Because I have missed out on over three years of super, I will potentially have to work longer into the future so that I have enough money to retire comfortably. … I feel betrayed by my employer and failed by the ATO for allowing this to happen for such a long time. I'm so frustrated that after such a long process it seems unlikely I'm ever going to see the super that's owed to me.
2.41
Witness 3 also told the committee:
The nonpayment of my superannuation by ECEC Management Services Pty Ltd has impacted me and my retirement. I am 59 years old and I don't have a long time to accumulate superannuation. I was out of the workforce for 10 years whilst raising my children. Every cent of my superannuation matters. It's not just the unpaid money; it's the potential earnings on that money that I have lost.
2.42
Per Capita explained the impacts on young workers, particularly young women:
The theft of super represents a large threat to the eventual retirement of young workers, as the compound interest that is generated over time is crucial to ensuring an adequate super balance at the time of retirement. Super theft is particularly dangerous for young women, as research shows that women are more likely to earn less, work shorter hours and spend longer periods of time outside the paid labour market. By engaging in super theft, employers are actively contributing to the future likelihood of poverty, insecurity and homelessness of older women.
2.43
As well as impacting individuals, there are wider impacts for the economy and society into the future, with stolen superannuation placing an unnecessary burden on Australia's pension system and the workers and taxpayers of the future—the young people of today who are already financial disadvantaged when compared to their parents. Mr Matthew Linden from ISA told the committee:
Our analysis shows unpaid super affects around one-quarter of the workforce, costing each affected employee an average of $1,700 per year. Unpaid super is more likely to affect young workers and those working in certain industries, such as construction, hospitality and retail. A young person who experiences unpaid super could retire with $60,000 less in retirement savings in today's dollars.
2.44
Further impacts of underpayments on businesses and wider society are discussed below.
Impacts on businesses
2.45
Unpaid entitlements contribute to the profitability of businesses, presumably contributing to executive salaries, higher dividends for investors, and possible expansion of the business. Mr Liam O'Brien from the Australian Council of Trade Unions (ACTU) observed:
I think this goes to the second driver of wage theft, which is the ability for employers to take profits by not complying or by not paying the necessary diligence to applying correct rates that would otherwise be there.
2.46
Mr Mohammed Abdillahi, a member of the United Workers Union (UWU), agreed, saying:
Wage theft is actually rampant, as I said before. It's systematic. It's not always obvious. There are managers in large companies, like my employer currently at Melbourne Airport, whose KPIs [key performance indicators] are basically to save the company money.
2.47
It also raises competition issues where those firms that have deliberately underpaid workers have acquired an economic advantage over their competitors who have done the right thing and paid the correct entitlements, as explained by Iain Campbell from the University of Melbourne:
Business models centred on underpayments aim to realise an unfair financial advantage, primarily by paying employees less than what is required by law but sometimes — in the case of undeclared work — with an additional bonus from avoiding taxation and superannuation liabilities. Employers may also be able to benefit from a shift in the effort bargain, confident in the expectation that labour supply will be endlessly replenished by new cohorts. Such business models can be described as predatory in two basic senses. First, they seek to take advantage of vulnerable employees, who are impeded in one way or another from challenging underpayments. Second, they seek to steal a march on competitors, who may be more reluctant to underpay or less capable of doing so.
2.48
The McKell Institute and other submitters told the committee that wage theft is fundamentally unfair, with ISA suggesting it gives the underpaying business a competitive advantage of around 10 per cent. The McKell Institute thinks it should not be tolerated amongst businesses and workers doing the right thing, writing:
… wage theft is fundamentally unfair for the majority of small, medium and large business owners who pay their staff correctly. Underpayment is anti-competitive behaviour – there should be a unity ticket between workers and the majority of employers who do the right thing to bring underpayment to an end - restoring the rights of workers, yes, but ensuring anti-competitive behaviour is stamped out, too.
2.49
Underpayments also keep marginal or insolvent businesses afloat by using employees' entitlements for cash flow. Ms Melinda Bolton told the committee of one case:
They admitted to not paying the superannuation. Their reason for not paying it was that the business was in trouble and they couldn't afford it. That was the gist of their defence.
2.50
It also shifts the profit risk to workers rather than business owners, and undercuts businesses which pay all entitlements, pressuring them to also underpay or pay low:
no employer should be rendered uncompetitive because they seek to comply with workplace laws. Our system is letting good, honest, and diligent employers down. The rule of law means nothing in industrial relations when the system encourages or even compels employers to undertake wage theft just to remain in business.
…
… the reality is that the competitive pressure, in particular the ability to survive when all of your competitors are paying below the safety net, makes it very hard at a first level to even have the motivation to comply … This essentially means that competitive pressures to comply with laws are so great that it potentially renders you uncompetitive. So the biggest drivers of wage theft that we see are those competitive pressures where noncompliance is widespread.
2.51
The NFAW observed the flow on effects of this competitive disadvantage:
If between 30 and 85 per cent of businesses in a given industry sector are underpaying, competitive pressure alone would bring that fact to attention of the remaining complying employers. Complying employers agree: according to the Black Economy Task force, 'firms that comply with tax, workplace relations and other regulatory requirements have told us that they are consistently being outbid by those who break the rules'.
2.52
There are negative consequences for businesses which are found to underpay their staff—including loss of reputation and customer loyalty—particularly where their brand is founded on ethical concerns.
2.53
However, the committee also heard evidence that adverse publicity about underpayments can have a perverse effect, with courts known to reduce penalties on employers where publicity has damaged their reputation.
2.54
The Cheesecake Shop told the committee that the cost of their compliance system is around $940 000 or $4000 per employee—'a significant imposition on compliant small businesses (our franchisees). Extrapolation of this to the economy as a whole gives an indication of the economy-wide cost of complexity'.
2.55
The committee also heard that industries where wage theft is common are less attractive, making it more difficult to source workers. The horticulture industry relies upon temporary migrant workers because it finds it difficult to attract local workers, as the Retail Supply Chain Alliance points out:
It is an open question whether so-called labour shortages in regional areas are genuine or a simply an inevitable factor caused by the destruction of employment conditions in the sector.
Impacts on the economy
2.56
Wage theft, along with insecure work, reduces disposal income and household spending leading to a reduction in consumer demand. Lower consumer demand means less money flows to businesses, consumer prices are kept low, there are fewer employment opportunities and wages stagnate—creating a downward economic spiral.
2.57
Wage stagnation has been a major economic concern over recent years given its circular and overall stifling effect on Australia's economy and its contribution to wage inequality and declining living standards, in both the short and medium term. Mr Josh Bornstein from Maurice Blackburn Lawyers explained:
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.
We see that every day now. We will comfortably make a decade of wage stagnation in this country.
2.58
The Governor of the Reserve Bank of Australia (RBA), Mr Philip Lowe, warned recently that while wages are expected to grow, inflation is pegged to overtake any wage increases. The RBA is also anticipated to raise interest rates. Head of the ANZ Bank, Mr Shayne Elliott warned that high inflation will persist for some time, resulting in weaker confidence, and longer-term shifts in consumer behaviour.
2.59
Mr Lowe advised that Australians will effectively be hit with a real pay cut of 1.5 per cent this year because sluggish wages growth won't meet the anticipated surge in inflation and soaring prices, putting families under further pressure.
2.60
A more equal wage distribution encourages productivity improvements and specialisation in higher value-adding industries, while low wage, low value-adding industries cannot compete.
2.61
Underpayments and low wages also appear to be contributing to the failure to complete apprenticeships. This has the effect of reducing the flow of qualified local staff, leading employers to argue for more temporary migrant workers to fill the gaps.
2.62
Low incomes increase reliance on taxpayer support through pensions, payments, and offsets available through the tax system, while at the same time negatively impacting tax revenues at both state and federal levels. Dr Stephen Clibborn puts it this way:
The victims of wage theft and other employer noncompliance are certainly not just the workers: they are the compliant employers, robbed of a level playing field; they are government coffers, for tax benefits; and they are all of us, in terms of receiving the benefits from those taxes.
2.63
Wage theft is unlawful and has a detrimental effect on workers and can be an indicator of modern slavery. WEstjustice told the committee:
There have also been numerous reports of ‘slave-like conditions’ by visa holders, and our services have significant concerns about the increase in exploitation of workers, including instances of underpayments, sexual harassment and sexual assault …
2.64
The Law Council of Australia (LCA) similarly submitted that 'acute cases of underpayment' may constitute 'modern slavery', requiring disclosure under the Modern Slavery Act 2018, and worth of consideration and greater enforcement under the Criminal Code Act 1995.
2.65
The next chapter considers the current regulatory framework and how it both protects workers and facilitates underpayment.