15 June 2021

Overtime is not a badge of honour – it is a warning sign

Finance KnowCents

The No. 1 Mistake: “We are OK: we pay way above the Award rate!”.

COVID-19 has put many practice staff under the pressure of longer than expected work hours. In addition to changing job descriptions, increased hours of work are leading to staff burnout.

The Australian Taxation Office has new payroll disclosure rules that start on 1 July 2021. It will be mandatory from 1 January 2022.

The ATO’s “softly softly” approach to Single Touch Payroll will not last long. It is important to revisit your payroll data as the ATO is starting to take a closer look at how you pay your employees. Most notably, it has been looking for unpaid overtime and “wage theft”. In this environment, “off the clock” or “fake timesheet” violations are not a great idea.

The remarkable convenience of digitisation of your payroll is a game-changer. It is naive to not think that the ATO and the Fair Work Ombudsman would not use this as a cheap back-door to ensure compliance. It will not be surprising to see the department starting to issue Medicare-like “please explain” letters within 12 months. You can act now to check you are compliant and potentially avoid the hassle.

Even large national law firms that thought they had done the right thing with their high-profiled advisers have been caught out on these new laws. In many big law firms, despite being paid (up to $500,000 p.a.) over the Award, their legal staff had worked so many extra hours it brought them under the minimum wage rate they were entitled to.

The ATO and Fair Work are after small-to-medium enterprises. Smaller practices are less well resourced. You are not “too small for them to care”.

Smaller practices are a low hanging fruit in the day of automation and data matching. They are an opportunity to establish an exemplary case to encourage compliance.

No time to read this?

For those who feel they do not have time to read this article, to manage the Australian Taxation Office’s new employment wages reporting requirements, click here for a quick Medical and Healthcare Employment Compliance checklist. You should look at this before completing your End of Year Payroll Checklist.

In the second part of this article, I will explain why exceptional staff quit and how to identify it before it happens. Stay connected, and communicate and collaborate with your staff for a solution. The final part is on how to break free from insane workloads and prevent claims of excessive overtime and burnout.

Death by regular overtime

Overtime is potentially a ticking time bomb that needs to be actively managed and stamped out.

For the well-intended, things can go horribly wrong. I am an extreme case. As a young graduate accountant, overtime almost killed me. I crashed my car into a tree at 5:30 on a Tuesday morning five minutes from work after falling asleep at the wheel. Nine operations later, you know why I am into promoting safe healthcare.

Excessive overtime can do harm: David Dahm’s car crash (actual photo)

For the $9.00 per hour I was getting paid, it really was not worth it. However, learning the lesson was the best thing that has ever happened to me.

Victoria’s recent young doctors class action is unprecedented and is another example of how ignoring this important issue can dramatically and systemically escalate.

Medical mistakes/errors and staff turnover breed a toxic workplace; you feel it and your patients feel it. This makes everyone slightly on edge. In the end, you want people to like what they are doing and not feel their goodwill exploited or taken for granted. It is much harder to recruit and retain people when morale is at an all-time low.

Understandably, staffing shortages do not help. Healthcare workers are ethically and morally torn to do the right thing but at what cost? Is it legal or sustainable?

To all our brave doctors and practice staff, WE GIVE A HUGE THANK YOU at this most difficult time. Every person’s life you touch is precious. For everyone directly and indirectly involved in healthcare, the expectations are becoming insanely and unfairly high.

It is relentless, exhausting and overwhelming. Doing more with less is the norm until you reach that breakpoint where you do more harm than good.

I can only hope this piece may shine a light on how to get your practice to higher ground.

General Practice under pressure

A new case in point is the General Practice (Pfizer) Expression of Interest (EOI) that practices need to apply for. For no additional funding for set-up and training, it adds another long procedure that is hard to recover in costs for most practices. This is especially for those who had just gotten over implementing the AstraZeneca vaccination rollout.

Keeping up with the vaccination rollout is stressful and complex: there are weekly changes to ATAGI, unclear MBS and policy procedures, medico-legal issues, pending no-jab-no-job rules and contracting rules. There are tedious and endless information meetings that underfunded practice owners and staff have to attend.

Given the new ATO payroll rules, you need to consider changing how you work on and not in the practice, and implement new systems that take into account the increased workload and new rules.

Time is running out

Given the situation with covid, the risk of a staff member making a complaint or regulators stepping in is at an all-time high.

The dark side to this story is unspoken and unpaid overtime and/or misclassification of Award entitlements. Jobs are regularly changing as practices pivot to meet changing demands.

New electronic backdoor “robo debt red tape” rules

The Australian Taxation Office has new payroll disclosure rules commencing on 1 July 2021. It will be mandatory from 1 January 2022.

It is important in this time to revisit your payroll data and do some checks for the basics the ATO might be looking for under the new regime.

Using changes to Single Touch Payroll (STP) from 1 July that the ATO will be mandating from 1 January 2022, there will be greater scrutiny on your payroll accounting systems. Single Touch Payroll was introduced in 2018 but has not been required of GP practices until now.

Since the introduction of the system, you will have noticed in the papers a lot of large wage theft cases involving large corporations. One significant recurring issue for all these big corporates was managing employee overtime.  Now that same scrutiny is going to be applied to smaller businesses using automated data matching.

The additional information you need to manage this problem and to report properly should already be captured in your current payroll software.

The key changes to the STP reporting include disaggregation of gross.

Currently, your STP report includes a gross amount, which is the total of many different components and payment types. Because some of these are treated differently, for social security purposes you will now need to report more detail.

Your STP report will separately itemise the following components of the gross amount:

For many businesses, up-to-date employment contracts are not being correctly mapped to payroll systems. This has led to many “big-end-of-town” successful underpayment of wage audits. The days of excessive overtime are numbered and marked with “eye-watering” penalties of up to $660,000 for corporations per incident.

The twin non-compliance enemies are hubris and ignorance.

The ABC ($12 million), Healius GP and Pathology company ($15 million), top-paying law firms and many others were prosecuted for the underpayment of wages.

Even with their top lawyers and advisers, many of the best and brightest organisations have been caught flat-footed. Poor contracts, poor advice, systems, misunderstandings and lack of attention to the details, or a combination, appear to be their main undoing. Many were paying above the Award and thought they were doing the right thing and/or were above scrutiny.

Small-to-medium businesses are next in line. As with many medical payroll audits, expect little leniency because you are saving the world. Working for the greater good or ignorance is not an excuse. You are expected to walk and chew gum at the same time on this one.

It is a good idea to carefully review whether you have a tax and Fair Work audit insurance policy.

No matter how generous the goodwill of your staff, employers under the Fair Work Act can no longer keep paying for “unreasonable overtime”.

You cannot contract out of this obligation even if the employee agrees.

The recent announcement by the ATO enables them to “robo audit” how your practice may get caught.

The ATO has taken this to a new level.

We have seen (and they have stated) that they are allowed to share data with agencies such as Fair Work, Payroll Tax, WorkCover and Superannuation Guarantees.

This is a sensitive time for general practice.

Practices are facing a new wall: Pfizer vaccine demand based on limited resources. To vaccinate Australia with insufficient Medicare funding is putting extraordinary pressure on GP practices at the time these rules are changing.

Top Six Mistakes Practices Make

The breeding ground for a systemic underpayment of wage error is usually created in the way you set up your practice. I am yet to see an Award-compliant process in place.

This starts with not accurately monitoring your staff morale. Simple and cost-effective tools such as Officevibe can get you there to seek timely appropriate professional advice.

From the outset, many practices do not seek specific legal or tax advice. Accordingly, they fail to update their systems correctly and legally prepared employment contracts.

  1. Don’t assume: “I am an honest person so we will be OK”

Practices that have “assumed” they are doing the right thing are most vulnerable to the new change.

Never assume you are doing the right thing the right way. Employment laws are not static; they change every year.  Copying other practices’ employment contracts or using generic employment templates that are not customised to your practice or industry may leave a systemic risk.

Move from risky behaviour to preventative behaviour.

  1. You do not have the time or money to deal with it

Saying you have no time because you are saving lives may fall on deaf ears.

The ultimate responsibility falls on practice owners, shared with their accountants and bookkeepers depending on their role in your practice.

Risking a fine of up to $660,000 per breach should help make this a priority if nothing else will. The ATO and Fair Work do not believe medical practices deserve special dispensation or are poor. On the contrary, the smaller ones that people can identify with often make great case studies.

  1. Do-It-Yourself

You do not have to look far to find a practice that has copied another practice’s template and modified or even written their own contracts. It is a dangerous approach. You do not know what the intended use or context of another practice’s contracts are.

For the unwary, employment contracts can become a complex document with many pitfalls. A simple word or number can cause a systemic problem such as quoting the incorrect pay rate.

Ask: when was the last time your contracts and systems were externally professionally reviewed by a lawyer or accountant?

  1. Assuming your professional advisers are on top of it…

For some, paying for professional advisers may be a grudge purchase, unless you are in the face of a complaint or prosecution. If you want to sleep better, the opposite is true.

Assuming your advisers are on top of it, and should have said something, is not a defence. Their defence will be: if you do not ask, they will not tell you, especially if you are fee-sensitive or expected to know.

Another challenge is that it is hard to find the right adviser. A big challenge is making sure your advisers are experienced enough and work together to proactively address your concerns.

But it is a necessary investment (cost) for doing business. Practices need to budget correctly for it. Understanding the benefits should outweigh the cost.

  1. Relying on outsourcing and great-looking payroll software is not enough!

Outsourcing to a payroll company may be cold comfort when you read the fine print. If you give them the wrong information, they usually disclaim any legal responsibility for incorrect information you give them.

If it has not been set up properly, your digital footprint will certainly make things a little more awkward to unwind.

A common mistake is: nobody has ever checked to see if your Fair Work compliant employment contracts have been correctly mapped into your payroll software system by your accountant. Do not be surprised the wrong figures automatically keep coming up, regardless of whether your bank account reconciles or not.

It is important to check all your contracts, make sure they are compliant and make sure that information is mapping correctly into your chosen automated or outsourced solution.

  1. No. 1 Mistake: “We are OK: We pay way above the Award rate!”

The belief that paying above award rates or salaries means a practice does not need to worry about certain aspects of award entitlements is often wrong.

If a practices does not have a set-off clause in an employee’s employment contract, it may be in breach of the applicable award and/or a practice may not be able to rely on the higher rate should an employee challenge their entitlements.

A set-off clause allows above-award payments to be set off against award entitlements (such as overtime, penalty rates, etc.). However, if the salary paid to an employee does not cover the applicable modern award entitlements, then the employer could potentially be liable for an underpayment.

Award misclassification, unpaid training and paying an “all-in-rate” for overtime and allowances is the number one reason professional practices so far –  including the big corporates and law firms – have fallen into trouble.

The devil is in the written details of your contracts. From what I have witnessed from the practices that I have represented, many DIY employment contracts can’t be relied on.

It is not a simple case of paying somebody $2 an hour above the Award rate and/or writing it into your contract and you are off the hook. Thinking you pay an “all-in rate” and mean no harm and not having this in writing is worse.

Practices have to do their homework to prove their case. Practice owners should personally check systems, processes (including workflows) and contracts, and seek qualified experienced advice now.

Regularly working unreasonable overtime – more than 38 hours a week – is against the law

Often, practice managers brag they “do not get paid enough and work over 60 hours a week!”

Excessive unmonitored overtime on a regular basis generates high staff turnover, preventable life-threatening healthcare errors and possibly a hefty case of underpayment of wages.

Practices need valid written all-in rate individual flexibility agreements that observe the Award conditions listed, such as specific allowances, penalties and overtime rates. Furthermore, they should ensure each person, regardless of the contract, does not to work “unreasonable overtime” hours (i.e., >38 hours on a regular basis). It does not matter whether you are a receptionist, nurse, practice manager or director who is an employee. This “grey area” is beginning to get a lot of attention from the ATO.

Many practices are not aware that regularly working more than 38 hours a week is not in accordance with the Fair Work Act unless it is mutually agreed, reasonable overtime. An inability (due to staff shortages) to take time off can only compound this pandemic problem.

The ever-changing needs of the pandemic such as vaccine boosters and opening up borders are not going to go away for at least another few years.

If your staff are being overstretched, it is time to admit it and think strategically how your practice can manage the problem into the future. It is time to “structurally” do something about it.

It is time to put an end to overtime!

Paying more money is not the solution. Treat the problem and do not use money to treat the symptoms. It will not go away and will get worse in time. This is how you lose great staff. Start by setting the right expectation.

Don’t be surprised your competitor is paying higher wages and making the same mistake. Get off the FOMO treadmill and focus on how you should run your practice first.

It is time to take a helicopter view instead of a bottom-up approach.

Eating and sleeping well should be the ultimate goal. Your practice is your most valuable investment. It is not an overhead. Valuing the intangible systems as well as the tangible is critical. Running a successful practice is about the software and not just the hardware inside. Focus on outputs and not just the inputs. How efficiently and effectively are you operating? 

For a practice under the pump, there is a better solution than more overtime for staff. But you need to step back, take advice and plan.

There are only two real alternatives: risk being less profitable and take on more staff. Or work smarter and not harder: do better with fewer resources. Both are difficult paths.

It is important in the process to stay connected, communicate and collaborate with your staff to find a solution.

Start by asking yourself the following questions:

  1. Are your staff happy? Do you need honest and discreet feedback? Use Officevibe to test your staff morale. Staff mark you out of 10, and as you can see, I use it in our firm and so does Xero;
Source: Office Vibe – Health and Life actual staff score as at 10th June 2021

24/7 compare yourself to the industry

Source: Office Vibe – Health and Life actual staff score as at 10th June 2021
  1. Check your employment agreements and systems: Make sure your contracts are correct and prepared with a legal professional with the support of your accountant. Correctly incorporate overtime payments and allowances into your contracts. Ensure you complete your End of Year Payroll runs with this checklist;
  2. Before calling your lawyer, call your accountant: Ask if employing additional staff is viable. Ask what will make my practice viable. Do not reinvent the wheel: understand what is possible. Review new ways to run your practice and then your numbers. Seek a medical and health experienced and qualified accounting second opinion. Then contact a lawyer to review your employment agreements;
  3. Work smarter and not harder: Consider effective and efficient new revenue and time-saving processes and technologies. Check our blog and/or;
  4. Free up key staff: outsource to experienced and qualified people the tasks that are  important but non-core activities such as bookkeeping, monthly benchmarking reporting and accounting, sterilisation etc. or;
  5.  Leave a legacy and not a liability: If you personally do not want to make the changes, carefully consider succession planning. Prepare to sell down part or all of your practice to the next generation who can help you do all of the above.

Please seek professional advice before acting on any of this information, it should be used for general information only as a conversation starter.

This article was published on the Health and Life Blog: Overtime is not a badge of honour: It is a warning sign!

I would like to thank  Lukasz Wyszynski from Hamilton Bailey Lawyers for his opinion on certain points in this article.

Some useful links

End of Year

2021 End of Year Payroll Checklist

Fair Work links

Maximum and Weekly Hour Fact Sheet

Hours for work breaks and rosters

Employment and payroll records

Records for payments made to employees

When Overtime applies

Employer superannuation checklist

Records for payments to contractors and suppliers

COVID-19 live update