The long and irregular hours combined with inadequate time sheet reporting have led to systemic underpayments issues that have rocked the sector in recent years. Some of Australia’s most prestigious firms have been hit with major claims, owing graduates as much as $30,000, proving no one is immune.

Australian law firms have now been put on notice by the Fair Work Commission about changes to the modern awards system. Recent underpayment prosecutions prove that many employers still lack the knowledge and the tools to ensure compliance with their Fair Work obligations.

For over a year, firms have been preoccupied with the realities of the pandemic – from economic fluctuations and shifting operations to remote work. With the dust settling, the legal sector needs to prioritise getting up to speed with changes to modern awards. Firms need to understand the potential risk of non-compliance, what they need to do to remain compliant and how to mitigate these risks.  

What’s new with the modern awards?

Before we go on, let’s take a moment to recap on the changes to the modern award requirements and what these mean for the legal sector. Since 1 March 2020, employers who pay annual salaries to employees covered by certain modern awards have new Fair Work obligations.

To satisfy these obligations employers are required to keep accurate time records including start/stop, unpaid breaks as well as overtime. Importantly, these records must include the start and stop times, including breaks, and overtime hours worked each day. These accurate and detailed time and attendance records are at the core of your compliance as without them you cannot check what the award entitlements would be, and so ensure your employees are no worse off under an annual salary arrangement.

The changes to the modern awards place a raft of additional overheads on employers. Firms need to be able to compare an employee’s salary against what they would have earned based on the hours worked and the underlying award. This reconciliation needs to be performed annually on the employee’s anniversary date.  Employers also need to be able to identify any overtime worked more than the agreed outer limits. This needs to be performed per pay cycle.

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The new requirements specifically apply to junior lawyers covered by the Legal Services and Clerks Awards with a new annualised salaries clause, provided they – as the Law Institute of Victoria notes – are working full-time and are earning under the current high-income threshold of $153,600. Excluded from these awards are qualified lawyers and those who have passed the bar exam.

The burden of responsibility

When it comes to underpayments, the Fair Work Commission has made it clear the burden of responsibility rests with those at the top. The Fair Work Ombudsman, Sandra Parker, recently stated: “I am calling on boards to seek assurance from their chief executive officers that wages are being paid to employees in accordance with the law. The buck ultimately stops with the chair.”

Most organisations understand the reputational risk of not complying with pay obligations but are not fully aware of the personal and legal financial penalties that C-level executives and board members can face. There is a misconception that only the payroll department is responsible in the event of employee underpayment. This, however, is not the case.

The introduction of the salary award obligations, combined with the far-reaching powers of the FWO to prosecute organisations that underpay staff, means that C-suite and company boards are well and truly in their crosshairs. Not only are the reputations of firms in the firing line, but those of senior executives.

With so much at stake, and reporting requirements more complex than ever, keeping track of employees’ work hours is no longer a job for manual timekeeping or outdated payroll solutions.

Outsourcing compliance to technology

While the C-suite cannot shift the burden of responsibility they can look to leverage technology to help alleviate the overhead of managing these compliance obligations.

This means law firms can ensure total compliance, avoiding underpayments and irreparable reputational damage entirely.

Looking ahead

As of 1 March 2021, it is critical law firms understand the full implications of the changes to the modern awards system. The good news is there are free online resources available for firms to test how at risk they are.

Firms must seek out new technologies that will not only ensure their employees are being paid properly from an ethical standpoint, but that they are avoiding any potential reputational damage.

With the right technology, firms can take the headache and the risk out of the new reporting requirements. In doing so, the legal sector can herald in a new era of payroll compliance, making underpayments a thing of the past.

Luke Thomas is the product marketing manager (people and payroll) for The Access Group.