Revelation comes as federal government considers barring bosses who have underpaid workers from being directors

This article is more than 6 months old

This article is more than 6 months old

Supermarket giant Coles is the latest major retailer to be caught up in an underpayment scandal, with the company expecting a $20m hit after underpaying managers at its supermarkets and liquor division over the past six years.

The update came as the company met its upgraded first-half retail earnings expectations, with Coles’ adjusted $725m figure confirming a strong Christmas period had underpinned a vastly improved second-quarter performance.

The attorney general Christian Porter, who is also industrial relations minister, released a discussion paper on Tuesday looking at options to tackle worker underpayments.

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The paper raised the prospect of adverse publicity orders, which could require an employer to display a notice admitting to underpaying workers. Company directors could be disqualified from holding office and businesses that fail to prevent wage theft banned from hiring migrant workers.

Porter said the vast majority of underpayments were not deliberate, but he said the issue was incredibly serious and bordered on negligence in the case of big companies that should be capable of following workplace law.

“Like most Australians, the government has been appalled by the number of companies that have recently admitted short-changing their staff – in some cases by hundreds of millions of dollars,” he said.

The Morrison government is also due to introduce legislation in coming week to criminalise the most serious forms of worker exploitation with significant jail terms and fines. Porter said the Coalition had already increased some civil penalties by a factor of 10.

“But 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 measures stem from the migrant worker taskforce, which came after shocking revelations of underpayment across 7-Eleven shops.

Coles’ group earnings for the six months to 5 January will comprise of a $20m underpayments provision after a review found about 1.0% of the firm’s salaried workforce – more than 1,100 people – had been paid below the general retail industry Award.

The review has so far revealed about 5% of salaried managers at the company’s supermarkets and liquor division had been affected, with the expected hit including $15m payments and $5m in interest and costs.

Coles said its review did not relate to team members covered by enterprise agreements, who comprise 90% of its workforce.

“We are working at pace with a team of external experts to finalise our review,” Coles chief executive Steve Cain said in a statement on Tuesday. “Once completed we will contact all affected team members, both current and former, to remediate any identified differences in full.”

It was revealed in October last year that Coles’ fierce rival Woolworths underpaid its employees by as much as $300m over almost a decade, only discovering it had been keeping the cash when shocked store managers complained they were earning less than their staff.

The ABC, Qantas, Super Retail Group, Commonwealth Bank, Bunnings, Rockpool Dining Group, Sunglass Hut, 7-Eleven and George Calombaris’ hospitality group MAdE are among the entities that have admitted wage underpayment recently.

In its first-half earnings result on Tuesday, Coles confirmed second-quarter comparative sales growth at Coles’ key Australian supermarkets division came in at 3.6% – meeting figures announced a fortnight ago.

Total second-half comparative sales growth came in at 2.0%, lifting from a dismal 0.1% growth in first quarter when its Little Shop sequel failed to replicate the success of the first rendition a year ago.

The result does, however, mark 49 consecutive quarters of comparable supermarket sales growth at the company.

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Shares in Coles were 0.35% lower at $16.85 after 40 minutes of trade on Tuesday.

Coles surprised the market earlier this month when it flagged earnings guidance of between $710m and $730m for the six months to 5 January, easily beating the $660m to $690m that had been expected.

The company’s liquor division remains under pressure, however, as a result of range reviews and discounting activity.

Cain said the summer’s bushfires had also had an impact on liquor volumes and a review of operations and an update would be provided at the full-year results announcement.

Coles’ 0.4% jump in first-half retail earnings does not account for a number of non-repeating items, including new lease provisions, fuel sales agreements and the cycling out of discontinued operations such as Kmart, Target and Officeworks following the 2018 demerger from Wesfarmers.

As such, net profit for the period was down 33.7% to $498m on a statutory basis.

Retail revenue rose 3.3% to $18.8bn but statutory revenue decreased 5.7% to $19bn.

Own Brand sales growth of 6.0% in the half was almost three times the rate of proprietary brands.

For the first time Own Brand achieved sales in excess of $1bn in December, growing by 7% in the month.

Cain said comparable supermarket sales in the new year had been broadly in line with the second quarter and he expected the second half would be free of costs associated with the removal of plastic bags and increased flybuys promotions a year ago.

Coles will pay an interim dividend of 30 cents per share, fully franked.