Low-paid workers and wage theft
Most people know someone who has been underpaid waiting tables, caring for kids, cleaning, fruit picking or serving in a shop, but the idea persists that outright wage fraud is confined to a few rogue operators at the fringes of the labour market.
Innes Willox, chief executive of the Australian Industry Group, told the Nine newspapers two weeks ago amid the fallout from the George Calombaris underpayment scandal that the “vast majority” of employers did the right thing. Instances of underpayment, Willox said, were mostly “genuine errors”.
However, according to Professor Mark Wooden of the Melbourne Institute, data from the Household, Income and Labour Dynamics in Australia (HILDA) survey shows almost a third of casual workers in Australia are earning less than the minimum wage. Even after allowing for measurement error, Wooden says, the number could still be as high as 15 per cent of casual workers.
With about 2.5 million people on casual work arrangements, that would mean some 350,000 people being paid below the legal minimum.
A recent study from Wooden and his Melbourne Institute colleague Dr Inga Lass suggests underpayment is both widespread and systemic among low-paid casual employees.
According to their research, these casuals earn far less than their permanent peers. In principle, casual employees should be getting 25 per cent more than permanent staff to compensate for their lack of leave entitlements. This has been a legal requirement since reforms to award wages took effect in July 2014. Before that, most awards provided for a 20 per cent premium.
But the study from Wooden and Lass shows only the highest-paid casual employees can expect to earn much more than permanents.
Among the lowest-paid 5 per cent of women, casual workers are earning a massive 27 per cent less than the equivalent permanent staff, while among men the shortfall is 12 per cent. The pay gap gets bigger as incomes get smaller. The lowest-paid 1 per cent of men working in a casual arrangement earn 16 per cent less than the lowest-paid permanent male workers.
Even among high-income earners, the premium that is supposed to exist for casual workers does not get close to the legislated 25 per cent. At the top 5 per cent mark in the wage distribution, the premium for taking on casual work is only 5 per cent for men and 10 per cent for women.
Wooden says there are reasons casual employees might not get the premium to which the law says they are entitled. Permanent staff, for example, are more likely than casuals to earn wages that are higher than the award rate.
However, he says, the dimension of the shortfall at the bottom end of the wages distribution is so large, it can only point to underpayment.
The study, which will be published in the forthcoming issue of the British Journal of Industrial Relations, is based on the Melbourne Institute’s HILDA survey, which has been tracking the same group of people every year since 2001. Wooden and Lass’s research has tracked workers over a 15-year period.
Wooden says the pay gap for casual jobs shows up even when you look at the same person shifting from permanent to casual work or vice versa. Among the lowest-earning 5 per cent of workers, men’s pay drops by 2 per cent when they move into a casual role, while women’s pay drops by 11 per cent. Getting these results for the same individuals eliminates the possibility that lower pay for casuals reflects factors such as education, gender, industry or skills.
The study is looking only at workers’ main jobs, and thus excludes most Uber drivers and other participants in the so-called gig economy. It also excludes people aged under 21, so the results are not influenced by youth wages.
Because the study is tracking the same group of people over a long period, it does not include many foreign students – of whom there are about 800,000 in Australia – where underpayment has been shown to be particularly rife.
These findings are at odds with a Reserve Bank study published last year that suggested there was almost 100 per cent compliance with awards and minimum-wage payments, a “near complete pass-through”.
However, the RBA study was based on the Australian Bureau of Statistics’ survey of employers, so it is unsurprising it showed correct payments. Employers will mark down the number of hours they say their staff are working in order to show they are paying no less than the legal minimum.
The HILDA survey is based on employees and gives a very different reading. Wooden says it is possible employees are exaggerating the number of hours they work, but the gap is too large to be explained away.
“The extent to which there are so many people getting paid less than the national minimum, it is inconceivable that there isn’t a significant degree of underpayment,” he says.
The latest HILDA survey, which was released this week, shows that among part-time workers, someone in the lowest-earning 10 per cent of workers was receiving only $12.50 an hour for men and $15 an hour for women in 2017.
These average pay rates fall far short of the legal minimum wage, which was $18.30 an hour in that year.
Again, the Melbourne Institute cautions there can be measurement errors in estimating both hours worked and income earned, which compound when calculating hourly earnings. These estimates also include workers aged under 21 so are skewed by youth wages, but the gap is still too big and points to widespread payment of wages below the legislated minimum.
Casual employment is particularly strong in a few industries that rely on a large and low-paid workforce. Hospitality is the most exposed, with two-thirds of its staff on casual arrangements, while about 40 per cent of employees in both the farming and recreation industries are casuals. Casuals make up about a third of the workforce in both retail and administrative services sectors.
Wooden notes that casuals in industries such as hospitality are unlikely to go to the Fair Work Ombudsman to complain about underpayment.
The Ombudsman’s most recent annual report shows it had recovered just under $30 million in lost wages for 13,400 workers in 2017-18.
According to the HILDA survey, while casual employment of women has held steady for the past decade – at an average of 24.5 per cent of the workforce – casualisation has been rising among men. The share of male employees in casual arrangements has risen sharply from 15.4 per cent to 18.6 per cent of the workforce over the same period.
After a Fair Work Commission ruling last year, casuals working regular hours with the same employer for a year are now able to request that they be transferred to the permanent payroll.
Wooden says that while the legislated 25 per cent pay loading for casuals would, in principle, be a disincentive for them to convert to being permanent staff, the research suggests many low-paid casual staff would gain from the shift.
Will the federal government’s proposed criminalisation of “wage theft” make a difference? Wooden suspects it is more likely to be the local fish and chip shop owner who gets caught than the celebrity chef.
Attorney-General Christian Porter has conceded it is unlikely the chronic underpayment by restaurateur George Calombaris, which totalled $7.8 million, would be covered.
In his court-enforceable undertaking with the Fair Work Ombudsman, Calombaris admitted his restaurants had failed to pay minimum award rates, add casual loadings, include penalty rates for weekends, and make any allowance for split shifts, overtime or making staff work through their meal breaks. He’d also failed to pay permanent staff their annual-leave loadings.
These underpayments to 515 staff went on from 2011 to 2017, in the face of warnings from the Ombudsman in 2015. The average underpayment was about $15,000.
However, the attorney-general told the ABC’s Patricia Karvelas there would be a steep test before underpayment was deemed to be criminal.
“My instinct is that in circumstances where there has been very large amounts of underpayment over a sustained period of time, where it has been knowing and there’s strong evidence of that, i.e. that the person knew that they were underpaying their staff large amounts of money over long periods of time, and fourthly, where there were efforts to conceal that underpayment – that’s the type of scenario.
“Some of those criteria appear to be exhibited in the Calombaris matter,” he said, “but not all of them.”
This article was first published in the print edition of The Saturday Paper on Aug 3, 2019 as "Parting of the pays".
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