Cosmetics retailer LUSH wins support for proactive approach after revealing $2 million in underpayments due to payroll errors

Cosmetics and beauty retailer LUSH has revealed more than 5,000 of its Australian staff were underpaid $2 million in wages over eight years due to payroll system errors.

However, the company’s decision to disclose the underpayments has won support from some members of the community, including one branding expert who says other businesses should take note.

In a statement released yesterday, LUSH Australia director Peta Granger said the company was “deeply sorry” about the underpayments, which it maintains were unintentional and due to the company not correctly updating its payroll systems when Modern Awards were introduced in 2010.

LUSH has now launched a national backpay scheme for the affected workers, which will seek to compensate all current and former employees.

“This resulted from a very serious failure on our part to upgrade our internal systems. We should have had far more respect for our people’s pay and upgraded our payroll infrastructure to keep up with the growth of our business,” Granger said.

“We would never knowingly under pay. This was not deliberate. It goes against everything we value and believe in, and we are so sorry to have let our staff down in this way.”

The $2 million in underpayment is markedly more significant due to LUSH’s previous regular advocacy for worker rights, diversity, and sustainability, with the retailer promising to maintain penalty rates after the Fair Work Commission announced they would cut them last year.

At the time, Granger told SmartCompany she hoped the stand against cuts to penalty rates would “highlight to businesses and politicians that in Australia treating staff fairly and ethically is rewarded with both engaged staff and customers”.

Current and former workers at LUSH can visit a dedicated web portal to register for the backpay scheme, and the company has also paid an additional $1.5 million to appoint an external payroll and auditing company to re-run the past eight years of payroll in the business, a process the business says will take until December.

“Whether it’s $1 or $1000, we are committed to connecting with every employee who’s been affected by our mistake,” Granger said.

“We made mistakes on pay, we found those mistakes and now we are doing everything in our power to pay the money we owe as quickly and as transparently as possible. We know we’re far from perfect, but we always strive to do the right thing”.

LUSH’s approach a strong one

Despite the scale of the underpayments, some have praised LUSH’s candid and responsible approach to compensating its workers, with comparisons drawn to the conduct of other businesses recently found to have underpaid staff.

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Speaking to SmartCompany, branding expert Michel Hogan believes LUSH’s conduct in dealing with the staff underpayment should be a blueprint for any business that finds itself in a similar situation. To her mind, LUSH has taken all the right steps.

“They’ve said they’re going to fix it, how they’ll fix it, and how long it will take. I give them an A+, not many companies would do it this way,” Hogan says.

Hogan also notes that LUSH’s claims of the underpayment not being intentional is largely believable thanks to the wealth of information around the business and its desire to treat its workers and suppliers ethically. The approach is “straight down the line” with the company’s values, she says.

“Brands don’t always get it right — no one ever does — but no one wants to hear you say it wasn’t your fault, or blame some third party tech,” she says.

Speaking to SmartCompany, Granger said the company’s proactive approach to repayment was largely just common sense, saying in life, if you find out you owe someone money “the instinctive reaction is to repay that person”.

“As company our response is no different, so our driving motivation was to work out exactly where the mistakes were made and ensure we completely paid back each staff member every cent we owe them,” she says.

Granger says she fully expects the Fair Work Ombudsman will want to calculate and verify the repayments, but the company was “never” going to sit around and wait for the Ombudsman to take action first because “our responsibilities kick in immediately”.

LUSH staff have also reacted positively to the news, says Granger, who says she has been “touched” by the support and is “immensely proud of how big-hearted they have been in their messages”.

For other businesses that find themselves in similar situations, Hogan advises following LUSH’s lead: acknowledging the mistake, stating exactly how you will rectify the issue, and saying how long it will take to do so.

But don’t go too overboard on one part of the process, she warns; some companies lean too heavily on the mea culpa, apologising profusely rather than just getting down to fixing the issues.

“Just apologise and fix it, and that’s exactly what LUSH has done,” she says.

Granger agrees, and though she shies away from “occupying the high ground” in situations such as these, she passes on similar advice.

“If we did have any advice it would be that in any situation it is always best to be open and honest and to trust the team around you,” she says.

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