As employers and employees continue to embrace the flexibility of working from outside of the office, it is becoming increasingly challenging to ensure workers are paid appropriately. Employment experts across the Baker Tilly International network explain how unpaid overtime occurs and the best practice for employers to ensure they don’t end up in a wage dispute.
While much of the world has transitioned away from lockdowns, mask mandates and other harsh COVID-related restrictions, one measure introduced to help curb the spread of the virus is fast becoming a permanent feature of the working environment.
Prior to the pandemic, working from home or working remotely was seen as an option only for the most progressive of companies, with many corporates fearing a productivity plunge if workers were left unsupervised for too long.
In 2019, analysis by Eurostat showed just 5.4 per cent of workers in the European Union aged between 15 and 64 usually did so from home.
In 2022, however, employers in many countries are increasingly finding they are having to embrace the practice of allowing employees to operate outside of the office, or at least offer a hybrid model, to attract and retain the best staff.
But while employees have embraced the freedom that comes with a flexible working environment and the extra time saved without having to commute to an office, working from home has produced an unfortunate side effect – a big increase in hours worked going unpaid.
Amanda Trewhella, Managing Associate at Freeths, part of the Baker Tilly International network, says that as the pandemic has forced office workers away from the office, it has become “too easy” for them to do extra hours.
“I think there is now more of an expectation to do so as well,” Ms Trewhella said.
“Whereas before, people would have had to have left the office at a certain time for social events and whatever else they have going on in their lives, and since people have been working from home without a commute, they are definitely working longer hours.”
Research conducted in 2021 by the United States-based ADP Research Institute showed 67 per cent of workers felt empowered to take advantage of flexible working arrangements since the pandemic began, up from just 26 per cent in 2019.
At the same time, unpaid overtime has started to soar, with the average worker reporting they were logging an additional 9.2 hours per week, a big jump from the 7.3 hours reported prior to the pandemic.
The research spanned 17 countries, canvassing more than 32,000 workers on their work habits since the COVID crisis engulfed the globe in early 2020.
In addition to the extra hours, nearly half (46%) of the respondents said they had taken on additional responsibilities, to cope with colleagues losing their roles or shifting to new jobs, or to deal with the extra workload COVID-19 has created.
“People are working into the evening and when you see other people doing it, it feels like there is now an expectation.” –
Governments around the world were starting to take notice even before the pandemic, with a raft of measures being introduced globally to ensure workers aren’t exploited and forced into working more hours than they are contractually obliged to.
Before COVID, France established itself as a leader in ensuring workers would not be burnt out, with the country’s 35-hour work week considered to be sacrosanct.
As technology advancements made it possible to be connected to the office around the clock, Emanuel Macron’s government introduced new laws in 2016 giving employees the ‘right to disconnect’ and no longer being required to respond to emails outside of normal working hours.
Now, the pressure in Europe particularly to ring fence working time has grown.
Similar laws have been recently introduced in Portugal, where a significant restructuring of the country’s Labour Code has occurred since the onset of the pandemic.
But while José Freitas, a partner at Baker Tilly Portugal, said remote work was extremely uncommon before the pandemic, unpaid overtime was not as rare.
Research conducted in 2018 by the University of Coimbra’s Centre for Social Studies found almost 50 per cent of overtime worked in the country went unpaid, equating to around €820 million that should have been included in employees’ pay checks.
Mr Freitas said even though Portugal boasted one of the highest rates of vaccination worldwide and its population was no longer dealing with harsh pandemic-related restrictions, the working from home phenomena was likely here to stay.
“This is a practice that no one is willing to let go because people are not used to going through traffic on their way to work anymore,” Mr Freitas said.
“Most people are no longer willing to spend an hour of their day going back and forth from their home to their job.”
Prior to this year’s introduction of laws barring employers contacting workers outside of normal hours, Mr Freitas said the Portugal’s Labour Code was adapted to allow remote working to occur.
“What we saw in earlier stages of the pandemic was that work hours and personal hours, the concept became blurred,” he said.
“It became common to receive emails at midnight, especially people who have young children, so they put them to bed and go finish work afterwards.
“Some people like that, but I must say that at a personal level, I find it a little bit strange.
“It’s important that people know that there is a limit and that there is a border between professional and private life.
“In practice, we haven’t seen a lot of difference but it’s still early.
“But I think it’s a good sign, meaning that this legislation basically says that telework will become something normal, something that will live with us for a while, at least until a new unforeseeable event changes everything again.”
Despite the practice being embraced by employees and employers alike, Mr Freitas said there were still certain challenges associated with remote working, particularly around equipment such as computers and phones, or furniture, which can influence an employee’s health.
“It’s important that people know that there is a limit and that there is a border between professional and private life.”
Looking forward, Mr Freitas said employers needed to put into writing an agreement on who pays for which costs, which equipment needed to be provided and what training would be needed to ensure there was no material difference between working from home and the office, and that employees’ health would be protected.
“Of course, this is not as easy to foresee because how can I ensure that you are safe while you are working from your home,” Mr Freitas asked.
“Some of these measures are not easy to imagine how they will be employed in real life, because they are mostly a letter of intent of how we want these relationships to be developed.
“One of the things that must be agreed to is the cost. At this point, the law is not very clear, meaning that employees must be paid for the increased costs, but it’s up to them to demonstrate that their costs have increased.
“In practice, what we see is that nobody wants to do this. It is still a work in progress, there are still a lot of doubts regarding the tax framework. Should this be subject to taxation or is this merely a refund?
“Public work entities, such as regulation entities, also share the same doubt, so my guess is that this will be improved in the future.
“What we see in practice and what we suggest to our clients is to agree on a reasonable fee, don’t use this to pay your workers something that they are owed because of the work they provide, but mostly to refund them of the increased expenses.
“But this is something that is clearly still in development.”
Australia’s ‘wage theft’ epidemic
Across the globe, Australian employers are facing widespread claims of what workers call ‘wage theft’, despite the country having some of the strongest employee protection mechanisms worldwide.
And it’s not just small businesses that are facing the ire of employees, with some of the nation’s biggest companies embroiled in wage theft scandals, with a second round of litigation in fewer than six months against supermarket chain Coles Group highlighting the pervasive nature of the problem.
An investigation by Fair Work Australia found Coles had allegedly underpaid more than 7,500 workers by $115 million from the start of 2017 until March last year, just months after the supermarkets chain was fined in Victoria over a failure to ensure employees received long service leave entitlements.
Coles’ biggest rival Woolworths has also been pinged, with a 2019 claim that it underpaid its workers by more than $300 million having settled in October, alongside a pledge to repay $50 million to its employees.
But that’s the tip of the iceberg. More than half of Australia’s 40 public universities are facing wage theft investigations, food retailers and restaurants have made headlines, and major banks have been sued.
In 2020-21, Fair Work Australia conducted more than 4,000 investigations involving workplace disputes and a further 874 compliance activities in high-risk sectors.
As a result of those investigations, Fair Work Australia was able to claw back nearly $150 million in unpaid wages for just under 70,000 workers over the financial year, a 20 per cent increase on the amount recovered in 2019-20.
But while the public discourse around wage theft generally devolves into accusations of big business ripping the little guys off, the reality facing business owners and company directors is that most underpayment issues in Australia are inadvertent.
Ben Powers, a partner at Pitcher Partners Melbourne, part of the Baker Tilly International network, said the complexity of the legal documents that outlined minimum pay rates and conditions of employment, known as awards, resulted in many employers unknowingly underpaying their workers.
“The awards are just overly complicated,” Mr Powers said.
“There probably needs to be a complete review and an overhaul to make them simpler, because nine times out of 10, employers are not trying to do the wrong thing, it’s just inadvertent because all of the changes to our workplace relations system over the years has made it more complicated than it needs to be.”
Mr Powers said clients that Pitcher Partners had assisted with underpayment issues in recent years were making mistakes such as incorrect classification of employees and erroneous interpretations of how overtime should be calculated.
“Companies need to have an ongoing compliance regime.”
The most common issues, Mr Powers said, were around overtime, with remuneration for extra hours worked one of the most complicated aspects of workplace governance.
He said a prevalent problem was that payroll systems were not designed to deal with the complexity of calculating overtime payments in line with award requirements.
“The other side of that is how employers record time,” Mr Powers said.
“Quite often, when we get called in to look at where there might be a problem, we find there is not the proper data around recording people’s time down to the hour based on the day and the time of the day.
“You might be paid under a standard shift arrangement, but the timesheet system is not recording the actual time of day you are doing the work, when you might have been entitled to a penalty or an overtime rate.”
Getting the details right is critical for business because the repercussions of underpaying workers, even if inadvertent, can affect their ability to attract and retain staff.
And if the business is customer facing, consumers may no longer want to buy from a business that has a reputation for ripping off their workers.
To avoid underpaying workers, Mr Powers said employers needed to be proactive in understanding changes to industry awards and how employees are classified.
And to ensure compliance, legal advice should be regularly sought.
“It’s not just set and forget,” he said.
“Companies need to have an ongoing compliance regime; a lot of problems employers have had is because payroll is something that doesn’t have the oversight or historically hasn’t had the oversight.
“You install a payroll system that runs for five years, but these awards are being updated every year, so I think the people that are doing it right are the ones that are constantly revising everything and getting advice year-on-year to make sure that their systems and processes are up to date.
“For smaller businesses, having the capacity to do that is a big challenge. It’s a complex world and it’s a costly exercise to go to lawyers and other professionals to sort it out.”
Extra hours an expectation in the UK
Unpaid overtime is less of a headline-grabbing scandal in the United Kingdom than in Australia, but employees are nonetheless increasingly being expected to put in extra hours for no reward.
A recent survey of UK workers showed £24 billion worth of unpaid overtime was racked up in 2020, as many industries shifted to working from home or hybrid working models, with 3 million employees working an average of 7.7 extra hours per week.
In many industries, particularly professional services where just a laptop and a phone are required to do the job, employees are expected to go above and beyond to advance their careers.
A recent report from UK-based think tank Autonomy found that unpaid labour was a growing problem, recommending that legislation should be introduced giving workers the “right to disconnect,” in line with the French laws introduced midway through last decade.
“People are working into the evening and when you see other people doing it, it feels like there is now an expectation,” said Freeth’s Amanda Trewhella.
“”You feel you should now be doing the same to keep up.”
UK employment law specifies a maximum 48-hour working week, however, Ms Trewhella said workers can choose to opt out of that mandate and work as many additional hours as their employer requires, provided that it isn’t detrimental to their health and wellbeing.
Regulating those extra hours, however, can be a challenging proposition.
“There is tracking software and some companies do use that to track when people are working and when they’re not, but morally, that’s a difficult issue,” Ms Trewhella said.
“It’s not something I would advise personally or would want to be tracked, but managers need to take the time to notice what people are doing.
“You don’t need to use tracking software, but if you see somebody sending you an email at 1:00 in the morning, that’s obviously a warning sign that shouldn’t be allowed to slip by and employers should be talking to their employees about it.
“It’s just about communicating what’s expected of employees and letting them know that just because a colleague or employer might send an email at midnight, it doesn’t mean that you have to respond immediately.
“It’s about having those conversations with people and being open about it.”
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