Compliance Update - Pay Secrecy Clauses in Employment Contracts
What do you need to know as a business owner about pay secrecy clauses in your employment contract?
If you’re a small business owner or you work for an organisation that includes sole traders, partnerships and trust structure in Australia you are likely covered by the Fair Work Act.
The Fair Work Act covers a range of rights in the workplace including a host of industrial relations legislation and compliance updates that organisations and business need to keep up with. For a more in-depth dive on this act, passed in 2009 by the Rudd Government, read more at the Fair Work Ombudsman.
With the recent changes in government there have been a raft of industrial relations reforms underway in Australia across the end of 2022 into 2023.
The update we’re focusing on today is the banning of Pay Secrecy Clauses in employment contracts and agreements which came into effect on 7 December 2022.
From this date onwards, if you introduce a Pay Secrecy Clause in any of your employment contracts or agreements, you could face a hefty fine. If your contracts before 7 December 2022 already have this clause, they are now void and you cannot enforce this clause and you should update this clause the next time you update your employment terms of agreement.
For those with employees who started from 7 December 2022 who have a Pay Secrecy Clause in their employment contract or agreement, you have six months – before 7 June 2023 – to remove this clause entirely to avoid risking a fine.
The key objective of this update is to reduce the gender pay gap by making wages more transparent within organisations and business. This initiative is also known as the Secure Jobs Better Pay Industrial Relations bill which also encompasses a range of other reforms.
What will the new rules allow employees to do?
The update to the Pay Secrecy Clause in employment contracts and agreements means that your employees have the right to openly share (or not share) information about their salary, pay and employment terms and conditions that relate to their pay, like hours of work.
Where before employees might have been allowed to share this information only with significant others and financial professionals as stipulated in this outdates clause, now they can share this information with their colleagues as well, if they choose to.
This also means that your employees can ask other employees with the same or different employer about their pay and employment terms and conditions relating to their pay.
However, an employee cannot be made to provide this information. While they may be asked, it’s up to each individual to exercise their discretion and they are not required to disclose this information if they don’t wish to.
For many businesses and organisations, particularly who have a historical culture of significant salary discrepancies, this is going to be a challenging update. You might have a team of people on wildly different ranges, perhaps even for the same types of roles, or the same exact role, and it’s highly likely that your team are going to exercise this right – especially if they have been feeling undervalued when it comes to their pay terms and conditions.
You may be concerned you’re going to receive an influx of pay rise requests, and while this may seem like an overwhelming prospect, it does exactly what the industrial relations reforms intended which is to increase wages across Australia and reduce the significant gender pay gap across many industries.
What are the risks to your business of not complying with the pay secrecy clauses in employment contracts?
While you may not agree with the update, it’s important to ensure that your business is compliant to avoid any risk to your business in both the short and long term.
From 7 December 2022 businesses and organisations have a 6-month grace period to get your employment paperwork up to date regarding this clause for any employee agreements and contract made after 7 December 2022.
This means that Pay Secrecy Clauses in your employment contracts must be update before 7 June 2023 otherwise penalties will apply.
For a breach of this legislation for all agreements entered into from 7 December 2022, the fines will be big!
The Fair Work Ombudsman, the body that ensures that workplaces are compliant, have been given the power to take enforcement action against employers in breach of this legislation. This is especially the case for any employer who has negatively or adversely treats their employees for exercising this new workplace right. This could mean potential civil court proceedings and isn’t one of those matters that you can just call up the Fair Work Commission and smooth out.
It’s worth the effort and headache of getting your employment contracts and agreements updated sooner rather than later.
Who can help you remain compliant with the update to the pay secrecy clauses in employment contracts?
We understand that not every business owner or organisation has the capacity to stay up to date with every single industrial relations reform so if you are feeling overwhelmed or anxious, seek out a professional to ensure that you remain compliant and avoid unnecessary risk.
If you’re unsure of where you stand with regards to this compliance update and would like to book a consultation, click here to book your complimentary 15-min HR call.
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