Employer watchdog issues $20,000 warning to potential business buyers: Check your employees’ pay packets

People looking to purchase an existing business need to ensure they double-check the rates their employees are paid and not assume they are being paid correctly, the Fair Work Ombudsman has warned.

The warning comes after a Victorian couple purchased a business and mistakenly continued to pay a young employee the same rate she had received under the business’s previous owners.

The error resulted in the pair having to back-pay the former employee almost $20,000 in outstanding wages.

Rachel Drew, partner at TressCox, told SmartCompany from the moment a business changes hands the new owners are responsible for ensuring the correct workplace entitlements for their employees.

“It is not a defence to a claim that the new owner continued to pay based on what the seller used to pay,” she says.

“Increases in wages over time, changes in employee roles, different award arrangements can all affect the correct rate of wages and level of entitlements.”

While the previous owners of The Sober Mule café in Mornington had paid the staff member correctly, subsequent increases in wage rates and a rise in the minimum national wage had not been passed on by the new operators.

The employee in question worked as a part-time kitchen hand from October 2010 to February 2014 and for most of her employment was paid $11.50 an hour.

Because the employee had a disability, the new business owners mistakenly assumed she was receiving a supported wage despite being covered by the Restaurant and Industry Award 2010, according to Fair Work.

 A supported wage is given to Australians who participate in the workforce without the full rates of pay because their disability significantly reduces their productivity in the workplace.

The employee was entitled to pay increases on her 19th and 20th birthdays, as well a minimum national wage increase each July thereafter.

A subsequent investigation by the employer watchdog found the young staff member had been underpaid a total of $19,622 over three-and-a-half years.

Drew says whether a business’ new owner can be held liable for underpayments by a previous owner “depends on all the circumstances”.

“Some business purchases arise from a sale of shares, meaning that the business ‘ownership’ does not actually change, only the share ownership,” she says.

“In that case, the new owners are responsible for past underpayments. Business transfers between related parties are not effective to avoid liability for underpayments.”

Drew says the key lesson to be learnt from this case is that employee obligations form a substantial part of most businesses.

“Failing to obtain the right advice about terms and conditions of employment and in particular ‘carry-over’ responsibilities can make the difference between turning a profit in the new venture or ending up in a financial disaster,” she says.

Warren and Lindy Inkster, the owners of The Sober Mule Café, cooperated fully with the Fair Work Ombudsman and have agreed to enter into an enforceable undertaking.

The undertaking will require the company to back-pay all outstanding entitlements to the affected employee within six months, as well as apologise in writing for the conduct. The business will also have to undertake training on employer obligations under federal workplace laws and make a $1000 donation to Disability Advocacy Victoria.

“We know workplace laws can be complicated for the uninitiated, and for those who are not industrial experts, but we ask small business to use the tools and resources that we provide for them and inform themselves,” Fair Work Ombudsman Natalie James said in a statement.

“In return, you will be able to act with confidence. It means that if a problem arises down the track, you can demonstrate your intention to do the right thing.”

SmartCompany contacted The Sober Mule café but did not receive a response prior to publication.