Big Personal Liability Cost for Company Directors
By David Bates, MD, Workforce Guardian - Australia's leading online employment relations service for employers
It should come as no surprise to all business owners that you can become personally liable for decisions you make in your capacity as director of a company - so it is critical that you fully understand your obligations.
In the employment relations arena, if you have responsibilities for determining and adjusting your employee wage rates, you may become personally liable for penalties if the company fails to meet its minimum legal obligations.
As a company director you need to be diligent, methodical and accurate in your observance of the Fair Work Act 2009. And this includes the Modern Awards you apply to your employees and the entitlements that they receive. It's really important to remember that just because you pay over and above the Modern Award pay rates it doesn't mean that you're exempt from the overall provisions of the particular Modern Award and National Employment Standards (NES).
Clear warning for directors
Indeed, there seems to be no end to the number of proceedings being brought against company directors.
As a case in point, a penalty of $72,000 was recently imposed on the sole director and company secretary of a waste management facility in the Australian Capital Territory who had been found to be underpaying 10 of its former employees.
The employees were underpaid their minimum hourly rate, overtime, casual loadings, various allowances and payment on termination of employment.
Although the director argued that the underpayments were inadvertent and that additional payments had been made to the employees, the court ruled that these were not made for the purpose of meeting the obligations imposed by the Modern Award terms and conditions, and so could not satisfy those obligations.
The court ordered that this penalty be paid to the FWO, which would then disperse the money to the underpaid employees according to the percentage of the total unpaid wages owed to each of them. No concession was given on account of the company's size.
Make no mistake, you will be held accountable for any failure of your business to provide workers with their full entitlements. As Fair Work Ombudsman Executive Director, Michael Campbell says in a media release on the organisation's website: "We will not hesitate to pursue individual directors in cases where they are centrally involved in denying workers their entitlements".
In another case, the former sole director of a retail company, which is now in liquidation, is currently being prosecuted for more than $40,000.
The Fair Work Ombudsman alleges the director committed eight underpayment-related breaches and four record-keeping related breaches of workplace laws. He faces maximum penalties per breach of $6600 for the underpayment matters and $1100 for the record-keeping matters.
Directors' Personal Liability for superannuation
It's important to note that your personal liability extends beyond the obligations of the Fair Work Act 2009.You see, directors' personal liability has also been extended to include non payment of super. Of course not meeting your compulsory employee super commitments has always attached a penalty, called the superannuation guarantee charge. This is composed of the amount of the unpaid super contribution plus an administrative penalty and some interest. A penalty of up to $3,300 for an individual and $16,500 for a corporation applies for failing to keep records.
With the new director penalty regime, directors are now personally liable for their company's failure to pay employee superannuation. While the new rules have been designed to snare businesses that are fraudulently trying to sidestep their obligations, the director penalty regime will also impact businesses that are simply facing a cash flow crisis. The rules are exacting. Even a non-cashed cheque or unprocessed EFP payment counts as failure to pay.
To this end, never has it been more important to ensure that arrangements are in place for the timely payment of superannuation guarantee obligations.
Harmonised OH&S legislation
Furthermore, as of 1 January 2012, significant changes to Occupational Health and Safety Laws come into effect across Australia. The new reforms impose a positive duty upon "officers" of companies (which includes directors) to exercise due diligence to ensure compliance with the new Work Health and Safety (WHS) laws. The penalties for breaching these laws will also be increased significantly.
Demonstrating effective compliance
In order to minimise exposure to non-compliance, as a director, you need to be able to demonstrate that you have taken appropriate action to ensure that your company complies with its obligations.
Appropriate review and reporting at Board level on compliance with employee obligations will help make sure employment contracts, record keeping and all pay and entitlements are being made in accordance with the correct Modern Award and NES.
Further, reviewing your safety policies and ensuring your business has best practice safety management systems in place with appropriate reporting and review of OHS issues at Board level should help ensure compliance with WHS laws.
In terms of employee superannuation payments, you need to ensure the correct funds are deposited to the superannuation accounts within the allowed time period.
As a director, an easy way to minimise non-compliance and help your business meet its employment relations compliance obligations is to subscribe to Workforce Guardian. As Australia's leading online employment relations service for employers, Workforce Guardian provides a comprehensive range of practical online HR tools. These include dynamically generated employment agreements, online employee files, HR processes, policies and documents all of which are compliant with the Fair Work Act 2009, Modern Awards and the NES.
Specially designed for small and medium-sized businesses, Workforce Guardian removes the complexity of meeting your compliance obligations. If you're not already a subscriber, book a demo today.
This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice may be necessary in particular transactions or on matters of interest arising from this article. Workforce Guardian Pty Ltd (http://www.workforceguardian.com.au/) is not responsible for the results of any actions taken on the basis of information in this article, nor for any error or omission in this article.