Where did it all go wrong? In the wake of CommBank’s record underpayments

The recent CommBank controversy saw Australia’s largest underpayments in history. How was this allowed to happen, and what can employers do to avoid ending up in a similar situation?

As recently reported by HR Leader, Commonwealth Bank of Australia (CBA) and its subsidiary CommSec were hit with a $10.35 million fine after underpaying employees $16.07 million between 2015 and 2021.

This was no accident either, with the Fair Work Ombudsman highlighting that the organisation “committed knowingly and systematically, which attract a tenfold increase in applicable maximum penalties”.

How were such extreme underpayments allowed to happen for so many years? According to Marcus Zeltzer, co-founder and managing director at Yellow Canary, a lack of oversight may be to blame.

“CBA failed to implement a regular review process that ensured compliant payments made to employees under IFAs and enterprise agreements, leading to over $16 million in underpayments over five years,” said Mr Zeltzer.

“The court found that senior CBA staff were aware of the situation, yet appropriate risk mitigation, oversight, and corrective actions were not put in place. As such, underpayments continued to compound. The court’s findings underscore its stance on serious contraventions: lacking sufficient oversight and checks to review payroll compliance constitutes a serious contravention of the Fair Work Act.”

This fine has become the largest of its kind in Australia. This could have ramifications for the future of underpayments and the processes companies implement to avoid issues.

“This unprecedented fine is the most powerful warning to employers who do not have adequate review processes in place. In light of evolving legislation and intensified enforcement actions, this indicates a new era of heightened compliance,” Mr Zeltzer explained.

“Senior staff at CBA were aware of underpayments, which escalated the issue to a serious contravention, yet it likely fell short of the intentional threshold required for wage theft.”

He continued: “The CBA case demonstrates how the courts will determine whether an underpayment is a serious contravention of the Fair Work Act. Following the passage of the Closing Loopholes Bill, employers lacking regular review systems and knowingly exposing themselves to underpayment risks stand to face severe penalties of up to $4,696,000 for each contravention.”

Leaders must be aware of the potential damage they can do by overlooking their payroll processes. Whether intentional or not, it can be easy to land yourself in strife.

“This case highlights the critical need for organisations to invest upfront in robust governance frameworks. The significant costs now incurred by CBA will surpass what could have been invested in prioritising employee minimum entitlements,” Mr Zeltzer commented.

“Regular payroll audits and proactive back payments would have averted compounding issues, saving millions in penalties and remediation project expenses. Designating a key owner to spearhead compliance frameworks within an organisation is crucial for fostering accountability throughout. Automation and technology further support such frameworks to minimise human error and alleviate pressure and resources from already busy HR, payroll, and operations teams.”