Risks of HR non-compliance for your business

2018 was a defining year for HR compliance. From the EU’s General Data Protection Regulations (GDPR) to renewed focus on workplace harassment in the wake of #MeToo, the ability of organisations to meet changing compliance requirements has never been more critical.

HR often bears the brunt of the fallout from non-compliance. This is seen in the almost weekly headlines relating to employee underpayment, injuries in the workplace, bullying and harassment, unfair dismissal cases and breaches of employment contracts – all of which can result in damage to reputation and even financial penalties.

Most of these obligations fall under the National Employment Standards (NES) contained in the Fair Work Act 2009 in Australia, and the Minimum Employment Standards outlined in the Employment Relations Act 2000 in New Zealand. Both jurisdictions also have separate health and safety at work laws, as well as laws relating to data and privacy.

Australia and New Zealand’s workplace laws are notoriously complex, but that’s no excuse for non-compliance – especially when the associated costs are factored in.

Employers in Australia, for example, can be fined up to A$63,000 for failing to keep employee records, whilst individuals (such as directors, managers and others found to be “accessories”) can be personally fined up to A$12,600 for knowingly making or keeping false or misleading employee records. In addition, changes to the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 mean employers involved in serious contraventions now face penalties of up to A$630,000 per contravention. The maximum penalty for individuals is now A$126,000 per contravention.[1]

Under New Zealand’s Employment Relations Act, pecuniary penalties are now set at up to NZ$50,000 per breach by an individual and up to NZ$100,000 per breach by a body corporate (or three times the unlawful financial gain made by the body corporate from the breach, whichever is greater). There are also other sanctions such as “banning orders” which can go so far as to prohibit people in breach from becoming employers.[2]

A far-reaching issue

While HR does play a key role in ensuring all aspects of compliance are met, in reality it’s a much wider issue. It is an organisation’s people and corporate culture that drive its risk management and strategy – which in turn has a direct impact on compliance-related issues.

Full HR compliance is also something many organisations struggle to achieve. In a 2017 survey[3], 29% of SMB business owners cited employment regulations, including hiring and firing rules, as having the most impact on productivity, followed by excessive red tape (23%) and leave provisions (11%).

In Australia, the Fair Work Ombudsman has turned up the heat on organisations in various industries with surprise audits. Some 39% of audited businesses were found to have breached workplace laws resulting in on-the-spot fines, cautions and further notices[4]. In the hospitality industry, for example, the most common breaches were underpayment of workers’ base hourly rates (38%), with inadequate or non-existent employment records and pay slips being another widespread breach (28%).[5]

Similarly, throughout 2017 and 2018, New Zealand’s Labour Inspector has paid particular attention to employers breaching the Holidays Act, Minimum Wage Act and Employment Relations Act. A key theme of recent NZ case law is a clampdown regarding the lack of employment standards for migrant workers. It is also apparent that there are widespread compliance issues with the Holidays Act. The Ministry of Business, Innovation and Employment estimates that between 10 to 40% of the workforce could be affected by Holidays Act compliance issues with a potential cost to the economy of between NZ$292 million and NZ$2.29 billion.

It’s also important to be aware of data privacy laws. In Australia, employers have a mandatory legal obligation to report any privacy breach. In New Zealand, while it’s not compulsory to report a privacy data breach to the Privacy Commissioner, it’s a good idea to be open about what’s happened and the steps you’re taking to fix it. The Government has indicated that a mandatory requirement to report data breaches will be part of future changes to a new Privacy Act. Organisations undertaking business in the EU must also ensure they are General Data Protection Regulation (GDPR) compliant (further information for Australian organisations here; NZ here).

What goes wrong?

Ineffective HR practices impact organisations on many different levels, in the form of fines, compensation, legal costs, turnover, lost productivity, absenteeism, low morale and brand damage. It’s beneficial to look at some recent cases from the past 2 years, to understand the breadth of possible breaches.

JurisdictionThe caseType of breachFinancial cost to business
AustraliaAn employer brushed against another employee at a Christmas partySexual harassmentA$20,000 in damages awarded
AustraliaA journalist was misclassified throughout their entire employment period with one organisationNational Employment Standards and awardsA$128,000 in back pay and interest
AustraliaA food delivery driver was found to be unfairly dismissed and was deemed to be an employee, not a contractorNational Employment Standards and awardsA$16,000 in compensation for unfair dismissal; the company has subsequently gone into voluntary administration
AustraliaA machine operator at a poultry farm who was dismissed for turning up to her job drunk won her unfair dismissal claim, due to an ineffective zero-tolerance alcohol policyIneffective company policyA$7,000 in compensation plus superannuation
New ZealandA restaurant employer failed to pay correct wages and holiday pay to 70 employees, most of whom were migrantsMinimum employment standardsNZ$78,000 fine issued and barred from sponsoring new visas to recruit migrant labour for a period of between 6 months and 2 years
New ZealandFive young migrant workers on temporary work visas were not paid holiday pay and there were no or inadequate wage and time records kept for employers. The employees worked up to 95 hours per week and one in excess of 100 hoursMinimum employment standards; Minimum Wage Act 1983, Holidays Act 2003, Employment Relations Act 2000The 2 defendants were ordered to pay a total of NZ$100,000 for breaches in respect of 5 employees; each employee received NZ$7,500 each out of the penalties awarded, with the balance being paid to the Crown
New ZealandA kindergarten teacher was found to have been bullied by her manager, who had a track record of bullying other workers. The teacher was later dismissed by the kindergarten after she refused to return to work because she felt unsafeUnjustified dismissal under Employment Relations ActNZ$100,000 payout to the teacher, which included NZ$15,000 compensation for humiliation and loss of dignity and hurt feelings, in addition to legal fees and nearly 17 months’ worth of lost wages

How technology can help

Cloud-based human capital management (HCM) technology can help address compliance risks in advance, by ensuring your HR system provides documents, contracts, and processes are regularly updated by subject matter experts. A HCM platform can provide automatic alerts to legislation changes and updates to any affected employment contracts, policies and procedures.

Through technology, businesses can more fully educate employees, as well as review and communicate key indicators such as comprehension and participation levels.

Compliance technology automates reporting and flags applicable legislation and rules on a case-by-case basis. You can also track changes and view updates made to personnel files in real-time.

Here are the key ways HR technology can help meet compliance obligations.

1. Add transparency to complex paper processes

Compliance has always relied on large portions of paperwork, from personal tax forms, employee handbooks, performance/disciplinary actions, health-related forms, and countless other documents. All this can now be stored electronically, not only freeing up physical space, but enabling quick retrieval when needed – for audit purposes, for instance. These documents are also easier to classify and organise, in line with regulatory norms.

2. Provide timely reports without fuss

Having a dedicated solution in place makes it easier to generate reports, without having to manually sift through and assemble all the necessary information. End-to-end HR platforms can support report generation for the benefit of regulators, auditors, or legal teams.

3. Monitor regulatory updates and process changes

Technology can prove invaluable for keeping track of all regulatory and legislative changes. The rules are automatically fed into the systems, processes are reconciled, documents filed, and anomalies flagged for resolution. This creates a truly transparent pipeline where each participant has full visibility over what’s happening.

4. Maintain accurate timesheets and synchronise with payroll

An electronic leave, time & attendance and payroll platform can keep HR departments in line with leave acts, paid leaves, overtime pay, logged-in hours, and other regulations. An automated system allows accurate rostering, time and attendance records, as well as wage tracking, preventing conflicts with employees and auditors and also potentially avoiding costly over- or under-payment of staff.

5. Conduct effective training and maintain records

A key tenet of compliance is training of all staff. This includes topics such as sexual harassment, bullying, diversity, safety, wellness, and more. The company must also be able to show, in case of an audit, that all employees undertook and completed the training. A learning management system (or LMS) can help streamline the process – all sessions and assignments are automatically recorded, including performance testimonials and certification. Automated reminders can also be sent to ensure employees are aware of their training obligations.

6. Make recruitment and onboarding a key part of compliance

Recruitment is a critical time to ensure that incoming employees hold the right qualifications, that appropriate and industry specific background checks (for example, bankruptcy checks for financial services related roles, or working with children checks for childcare related roles) have been conducted, and that any training shortfalls are identified. This information, obtained through interviews and pre-employment screening checks, can be input into a HCM and action can then be taken. Just as critically, recruitment reporting functions can also ensure obligations to creating a diverse workforce are being met. Onboarding processes can also be configured to ensure that various aspects of compliance – for example, education relating to relating to discrimination or bullying – are addressed.

From a once-off process to an evolving practice

There will always be risks associated with running a business. To this point, time and energy has usually been spent managing risk presented by economic and commercial forces to ensure sustainable profitability and growth. However, what’s often forgotten are the significant risks relating to the people within an organisation. Smart use of technology can bridge this gap and help move compliance from the traditional once-off, tick-the-box process, into an ever-evolving practice that becomes part of the culture of an organisation and helps everyone stay one step ahead of inevitable change.

 

ELMO Cloud HR & Payroll offers clients an integrated suite of HR, payroll and rostering / time & attendance solutions from one vendor, in one dashboard and provides one user-experience. ELMO’s cloud-based platform helps organisations meet compliance obligations and manage employees more effectively by automating processes, streamlining workflows and enhancing reporting functions. For further information, contact us.

[1] https://www.fairwork.gov.au/about-us/news-and-media-releases/2018-media-releases/april-2018/20180411-workplace-basics-campaign-mr

[2] https://www.adls.org.nz/for-the-profession/news-and-opinion/2017/3/24/increased-penalties-for-minimum-standards-breaches/

[3] Scottish Pacific SME Growth Index, September 2017

[4] https://community.hrdaily.com.au/profiles/blogs/non-compliance-with-industrial-laws-just-got-15-more-expensive

[5] https://www.hcamag.com/hr-news/fair-work-finds-72-of-audited-businesses-breached-workplace-laws-252314.aspx

Learn more about how ELMO can help your organisation.
Learn more about how ELMO can help your organisation.