Directors take note: Unpaid employee entitlements may be your personal responsibility

Under the Fair Work Act 2009 employees can make application to recover unpaid statutory award or agreement entitlements from their employer. Those applications are usually brought in the Federal Circuit Court, although in New South Wales they are increasingly being made in the Chief Industrial Magistrate’s Court.
In appropriate cases a company director or other knowing participant in the failure to pay the employee entitlements can be ordered to meet the unpaid entitlements, if they were involved in the relevant contravention.
This may be particularly relevant where the employer company is in liquidation.
A director or other participant in the failure to pay the employee entitlements (a knowing participant may be a human resources or other manager responsible for payment of the entitlements) may also be liable for “pecuniary penalties” of up to $12,600.00 for each breach.
This is an important consideration in any employment arrangement, although may be particularly relevant in contracting situations. Contractors are increasingly seeking to recover unpaid entitlements, often dating back over some years, alleging their engagement is a “sham contracting” arrangement. In those circumstances, despite their contract payments often being “grossed up” to cover employee entitlements, if found to be an employee the person will be entitled to the statutory entitlements under the Fair Work Act in addition to any payments made to them as a “contractor”.
The lesson to be learnt is that you should ensure that all employee entitlements are properly calculated and paid, and if seeking to engage persons as contractors ensure the arrangement is not in reality one of employee/employer.