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Wesfarmers sells stake in Coles for $1.05 billion

Coles’ former parent company Wesfarmers has reached a deal to sell a 4.5 per cent stake in the supermarket giant for $1.05 billion.

Wesfarmers will retain a minority interest of 10.1 per cent along with its right to nominate a director on the Coles Board, as part of the terms of the demerger of Coles from Wesfarmers in November 2018.

The partial sale of the Coles shareholding is expected to deliver a strong return for shareholders while enabling continued collaboration between the two companies, according to Wesfarmers managing director Rob Scott.

“We believe this level of divestment is in the best interests of our shareholders and consistent with our objectives at the time of the demerger, which included demonstrating continued confidence in Coles’ future as a stand-alone listed company,” Scott said.

“We have been pleased with the performance of Coles as an independently listed entity and believe it is an appropriate time to realise value for our shareholders while retaining a meaningful interest and ongoing connection with Coles, including representation on its Board and through our flybuys joint venture.”

On Wednesday, Wesfarmers admitted to $24 million in staff underpayments, including $9 million at Target, less than 24 hours after Coles announced underpayments of $20 million.

Wesfarmers expects a pre-tax profit on sale of its Coles stake of approximately $160 million.

Fair Work to investigate Coles

Australia’s Fair Work Ombudsman said on Tuesday that it will be conducting an investigation into Coles Group following revelations that staff have been underpaid.

Fair Work Ombudsman Sandra Parker said she was disappointed to see that Coles Group breached the Fair Work Act for several years.

Despite commencing a wage review in November 2019, Coles left it to the last minute to inform the Ombudsman, which has only heightened grievances.

“In this case they chose to inform us only moments before their financial results announcement,” Parker said.

Coles and Target are the latest in a long list of Australian companies to identify errors in their payroll system.

In October 2019, Woolworths announced that staff had been underpaid by approximately $300 million, leaving Australia’s big two supermarkets embroiled in underpayment scandals.

Parker said it is essential that there are strong measures in place to ensure that employees are not prevented from accessing their full entitlements. 

“I am calling on Boards to seek assurance from their chief executive officers that wages are being paid to employees in accordance with the law. The buck ultimately stops with the Chair,” Parker said.

Is award system to blame?

The award system appears to be a central problem in many underpayments of late and has been criticised by many for being too complex.

Tracy Angwin, CEO and founder of Australian Payroll Association and Director of Payroll HQ told Inside FMCG that while it is complex, the laws work well with people who are qualified to do the job.

“The main problem is that retailers tend to rely on systems and not people. Often, this means they are not investing in qualified payroll professionals. In fact, a recent report from the Australian Payroll Association found that most payroll staff are under-qualified, with just 10 per cent of payroll professionals across small and large organisations reported to have a competency-based payroll qualification,” Angwin said.

She said it would be difficult to make changes to simplify the system particularly as legislative changes relating to annualised salaries come into effect on March 1.

“They are not just going to just impact retail but a whole array of modern awards. Again, retailers need to invest in qualified payroll professionals to ensure they can aptly interpret the awards and legislation.”

Angwin said she believes that in most cases, an underpayment is accidental and that it comes back to a need to invest more heavily in the payroll function.

Government seeks to introduce punishments for underpayments

Attorney-General and industrial relations minister Christian Porter released a discussion paper on Tuesday that explores ways to tackle worker underpayments.

Under proposed actions in the paper, employers could be required to display a notice admitting to underpaying workers; directors could be disqualified from holding office and businesses that fail to prevent wage theft could be banned from hiring migrant workers.

While Porter said the majority of underpayments were not deliberate, he said it has become a serious problem and in some cases borders on negligence.

“It is clear to me that more still needs to be done to motivate companies to improve their performance, such as disqualifying directors of organisations that continue to get it wrong,” he said.

The government is due to introduce legislation in the coming weeks to criminalise the most serious forms of worker exploitation with jail terms and fines.

The measures stem from the Migrant Worker Taskforce, which came about following revelations of underpayment across the 7-Eleven network.

Angwin said these measures are need if the act of wage theft has been proven to be deliberate, like in a recent 7-Eleven case, where an operator forced workers to withdraw and hand back part of their pay.

“That was absolutely a criminal offense,” Angwin said. “However, if the act was not deliberate, I don’t think it should be criminalised. This is more an issue of negligence, than it is a criminal offense. It doesn’t mean it is not serious, however.”

“Right now, we’ve got employers looking into the problems in their payroll systems for the first time. This means that the number of underpayment scandal headlines is only going to get worse, before it gets better.”

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