Charities underpaying staff explained

We take a look at how some charities end up underpaying their staff and what to do if it happens in your organisation

Because charities exist to make the world a better place, any misbehaviour is unsurprisingly going to attract attention.

In recent years, a number of charities have been in the headlines for underpaying their staff.

In 2018, Red Cross Australia was put under the spotlight for failing to pay its workers correctly because it had made incorrect assumptions about the award and enterprise agreement coverage, as well as the classification of roles. 

In 2019, World Vision Australia was faced with a similar situation, owing 200 casuals and 45 permanent staff members money because there had been an error in determining the correct award for employees.   

And just recently, RSPCA NSW signed an Enforceable Undertaking with the Fair Work Commission, agreeing to back pay staff more than $220,000 because of a payroll error.      

While these are only a few recent examples, what’s important to note is that none of the charities underpaid staff on purpose. 

There are some in the sector who believe the problem of charities underpaying staff could be quite widespread, but noone is talking about it, in part because they don’t want to risk the repetitional damage, and in part because when it comes to paying staff it is actually a complex and constantly moving beast.

Geraldine Menere, the head of Justice Connect’s NFP Law, told Pro Bono News that in her experience, charities intentionally underpaying their staff were incredibly rare.  

“I really think it’s more a result of the system being so complicated, with so many layers to understand for small organisations that may only have a few paid staff,” Menere told Pro Bono News. 

What’s complicated about the system? 

There are 122 modern awards, with some applying to specific occupations while some apply to whole industries.  

While there is no award specifically for the charities sector, the award that many community organisations fall under is the Social, Community, Home Care and Disability Services Industry Award (SCHADS).  

These awards were introduced to provide pay rates and conditions of employment such as leave entitlements, overtime and shift work, among other workplace related conditions. Modern awards were introduced back in 2010 coinciding with the introduction of the new national workplace relations system, designed to protect worker rights.   

But according to charity leaders, the system is clunky, complex, and constantly evolving, which makes it hard for time and resource poor organisations to track what employees should actually be paid. 

In the case of World Vision Australia, an internal review found that employees should have been covered by the SCHADS award when they previously weren’t.   

This was only determined after seeking advice from multiple, highly credential industrial relations legal firms across the country. 

Is there any way to avoid this happening? 

Most charities and their boards (who are usually there on a volunteer basis) won’t have the capacity, the expertise, or the resources to understand complicated industrial relations (IR) law, or the regular changes that are made to it. 

That’s why seeking the advice of lawyers who specialise in IR at least once a year is important to keep abreast of any significant changes that have happened since last checking in.  

The Fair Work Ombudsman has also launched a new free service for small businesses and organisations to access tailored written advice on pay and entitlement issues such as award provisions and other pay and employee entitlements.

Maintaining a good relationship with the Fair Work Ombudsman is also something to remember, so that if anything does go amiss it can be dealt with smoothly. 

And what if an underpayment issue does arise? 

If an underpayment issue does arise, it’s critical to face up to the problem rather than just hope it goes away. 

This could mean an internal investigation and then self-reporting to the Fair Work Commission. 

There’s also the risk that the Australian Charities and Not-for-profits Commission gets involved, with actions around financial mismanagement ranging from warnings and directions through to financial penalties and revocation of a charity’s registration.  

And because this is a sensitive issue with employees who might have been underpaid, it’s critical to communicate transparently and openly with them from the beginning. 

An example of this is in Camp Quality’s 2019 annual report, where the charity outlined exactly what the underpayment issue had been and how it had dealt with the problem.

The report said that although the organisation had no notifiable breaches in 2019, an audit of employees’ salaries against modern award classifications found that 11 per cent of current employees and a number of ex-employees had not been correctly paid. 

“Immediate steps were taken to rectify the issue and tighter controls were implemented to ensure the risk of this occurring was greatly reduced,” the report said.  

“Camp Quality self-reported the matter to the Fair Work Ombudsman, who have advised that they are satisfied with the process undertaken by Camp Quality and the outcome.”

And finally, don’t be afraid to reach out for advice from other charities that have undergone a similar process. No two cases are ever exactly the same, but learning how other organisations managed the issue is important and can be useful. 

If you’re interested in learning more, join Daniel Komesaroff in Pro Bono Australia’s masterclass on breaking down employment law on Thursday 22 July. Find out more and purchase tickets to the online event here.