A small error by an aged care operator in the calculation of its overtime rates over a 6 year period has uncovered $4.8 million being owed to its employees.

In November 2014 the operator, a subsidiary of Japara Healthcare, reviewed its processes for the payment of overtime rates of pay at its residential aged care facilities.  The review identified significant deficiencies including a manual approval process for payment of overtime requiring two levels of management to approve payment in writing before overtime rates were paid by the payroll department.

An initial audit identified that in the previous 6 years, some 4,850 current and former staff had been underpaid overtime when they had worked more than 8 hours on a day shift, 10 hours on a night shift or more than 76 hours in a fortnight.

The operator voluntarily reported the underpayments to the Fair Work Ombudsman and worked with the agency to address the underpayments.  It took steps to implement corrective actions, notify current and former employees of the underpayments and made back payments to those employees.

It was agreed by the operator that the failure to pay the correct overtime rates of pay for all periods of overtime worked by the employees was in breach of 24 separate industrial instruments including the Aged Care Award 2010, the Nurses Award 2010 and various enterprise agreements and transitional instruments to which the operator was bound.

Rather than prosecute the operator, the FWO accepted an Enforceable Undertaking which contained a number of obligations including that the operator would:  

  • Fully implement a new workplace management system that had previously been announced to its shareholders which included a fully electronic time recording system.   
  • Develop and implement systems and processes to ensure future workplace relations compliance.  
  • Engage a third party auditor to undertake a further full audit of all overtime entitlements during the relevant period and rectify any additional underpayments.  
  • Provide access to independent financial advice for current employees whose underpayment exceeded $10,000 and set up a telephone hotline and email address for employee enquiries about the underpayments.  
  • Donate $20,000 to Alzheimer's Australia Dementia Research Foundation for the purposes of medical research.  
  • Place a public notice in The Australian in which they describe the underpayment contraventions, the remedial actions and the Undertaking and also apologise.  
  • Design and implement a training program for all roles with managerial responsibility for human resources, employee entitlements or payroll that relates to compliance with applicable industrial instruments and the transfer of business provisions in the Fair Work Act and compliance with transferring instruments; and   
  • Engage an accounting or audit professional to conduct future audits of the operator's compliance with Fair Work laws relating to pay and conditions of employees (future audits were agreed to be conducted for a period of 3 years and the outcomes reported to the FWO).  

The FWO may accept an enforceable undertaking if it believes that there has been a serious breach of the Act and the employer acknowledges this, accepts responsibility and agrees to fix the harm.

An enforceable undertaking is a publicly available and legally binding document and the FWO can take legal action in a court to enforce its terms if it is not complied with.

The FWO did not believe that the underpayments were deliberate in this case but pointed out that it was a timely reminder to major employers that a small error can result in a hefty bill for the back payment of wages.  We would add that there is also the risk of prosecution and significant costs in remedying any breach.

Lessons for aged care operators

Operators must ensure that they:  

  • Have correctly identified the industrial instrument which applies to their employees, including those that may apply because of the acquisition of a new facility.  
  • Correctly apply the terms of the applicable industrial instrument particularly in relation to overtime and penalty rates  - these can be complex and operators should seek advice if they are uncertain.  
  • Have appropriate time recording and payroll systems in place which accurately reflect their obligations under applicable industrial instruments - manual or outdated electronic systems are prone to human error particularly if the complexities of overtime and penalty obligations are not fully understood.  
  • Provide ongoing training to all employees with responsibility for human resources and employee entitlements including all payroll staff.  
  • Regularly review their time recording and payroll systems particularly when award or agreement rates are increased or when new industrial instruments are introduced as new facilities are acquired.  
  • Have appropriate procedures in place for all queries or concerns about employee entitlements to be investigated so that any mistakes can be quickly identified and rectified.    

Reference:  Section 715 Enforceable Undertaking – Japara Healthcare and ACSAG Enforceable Undertaking.