This week we are unpacking a major announcement from the Fair Work Ombudsman that serves as an important reminder for the not-for-profit sector and small businesses alike.
National charity organisation The Smith Family has entered into an Enforceable Undertaking after self-reporting more than $5.9 million in underpayments affecting 784 current and former employees.
The Case: How a Lack of Systems Creates Massive Underpayments
Between 2016 and 2024, staff across multiple departments: including education program workers, managers, engagement advisors, and back-office corporate teams in marketing, accounting, and HR: were paid incorrectly.
The charity self-reported the non-compliance to the Fair Work Ombudsman in 2023 after identifying the discrepancies during an internal review. The total back-payments reached $5.912 million, which includes underpaid wages, superannuation contributions, and interest. Individual back-payments ranged from $1 to over $121,000, with an average payout of about $7,900 per person.
The Back-Story: The Two Fatal Compliance Mistakes
The Fair Work Ombudsman investigation found two clear systematic failures that allowed these underpayments to go unnoticed for eight years:
- Award Confusion: The organisation lacked adequate systems to correctly identify which industrial instruments, such as the correct modern award or Enterprise Agreement, applied to specific employees. This meant many staff missed out on minimum rates, overtime, allowances, and public holiday pay.
- The Classification Trap: Even when they identified the correct framework: like the Social, Community, Home Care and Disability Services Industry Award (SCHADS Award): they unlawfully classified employees at a lower grade than was appropriate for their qualifications, experience, or actual duties.
Because the charity failed to conduct regular payroll and classification reviews, these errors compounded year after year.
How to do it better:
- Audit Your Classifications: Never look at a job title alone when determining pay. You must map the actual day-to-day duties, decision-making responsibilities, and required qualifications against the specific award definitions.
- Implement Automated Systems: Moving away from manual or legacy tracking is crucial. Part of The Smith Family’s commitment under the Enforceable Undertaking is implementing an automated time-and-attendance system to ensure proper tracking of hours and overtime.
- Schedule Routine Independent Reviews: Awards and enterprise agreements change regularly. Conducting an annual or bi-annual payroll compliance audit ensures a minor administrative slip-up doesn’t turn into a multi-million-dollar liability over a decade.
The Bloom HR Takeaway
In the small business and NFP space, leaders are often operating under tight budgets and managing complex funding models. However, this case demonstrates that compliance cannot be treated as a set-and-forget task.
The Smith Family did the right thing by self-reporting and fully cooperating, which is why they were able to sign an Enforceable Undertaking rather than facing litigation in court. But the financial and operational burden of fixing an eight-year oversight is immense.
The hidden trap here is the classification error. It is incredibly easy for a manager to place a new hire on a baseline level without checking if their qualifications or leadership duties automatically bump them up to a higher band under the SCHADS Award. When you multiply that single error across hundreds of staff over several years, the numbers add up quickly.
Ensuring your payroll systems match your actual award obligations is not just a matter of finance; it is about protecting the sustainability of your organisation and valuing the people who deliver your mission.
Are your modern award classifications accurate, or is a hidden payroll error risking your organisation’s compliance? At Bloom HR, our HR Advisory service specialises in award mapping, compliance audits, and system configuration to ensure your processes remain robust and transparent.
Call us on (02) 8114 4449 or schedule a free 30 minute consultation