IAG has back-paid staff more than $37 million and signed an enforceable undertaking with the Fair Work Ombudsman following underpayments over the past decade due to “flawed processes”.

The total includes more than $21 million in wages and entitlements owed between 2013 and last year under federal laws, plus interest and superannuation, and $16.2 million in long service leave entitlements under state and territory rules for the period between 2013 and 2022.

As part of the enforceable undertaking, which includes compliance monitoring and training, IAG will make a $650,000 “contrition payment” to the Commonwealth Consolidated Revenue Fund.

State and territory long service leave entitlements are not under the Fair Work Ombudsman’s jurisdiction, but the payment forms part of IAG’s remediation program.

Fair Work Ombudsman Anna Booth says an enforceable undertaking is appropriate because IAG has started a major overhaul of systems and undertaken remediation that includes rectifying underpayments pre-dating the six-year statute of limitations.

“IAG had substantial, long-running compliance breaches underpinned by flawed processes,” Ms Booth said. “Once identified ... IAG responded strongly and invested heavily to fix those problems, including through new measures to ensure all its workers are paid correctly in future.”

Company entities that are part of the undertaking are Insurance Australia Group Services and Insurance Manufacturers of Australia.

The average back-payment under the federal laws is just over $1000, although 14 workers have been paid more than $200,000, the ombudsman says.

Underpaid workers were located around the country. IT professionals and support workers, front-line claims staff and call centre staff were among the most frequently underpaid.

Administration, customer service and sales staff, plus various consultants, assessors, underwriters, analysts, sales and mid-level managers were also affected.

IAG self-reported non-compliance issues to the regulator in December 2020 after conducting an internal review of payroll processes. It announced a provision in its 2021 financial results.

The company says it found 6094 current employees and 14,117 former workers had been underpaid one or more entitlements, including certain overtime allowances and superannuation contributions.

The ombudsman says employees were underpaid overtime, weekend, public holiday and shift-work entitlements, as well as minimum wages, leave entitlements and other allowances.

“IAG has apologised to the current and former employees who were impacted by these errors,” the company said in a statement today. “A key cause of these issues was IAG’s payroll system, which required employees to submit their claims for entitlements manually, rather than having them automatically calculated by IAG’s payroll system.”

The insurer has introduced new controls and payroll processes and invested in a time and attendance system that will automatically calculate entitlements. The new system is due to be implemented by September.

Ms Booth says IAG has made the most significant commitment on board oversight seen in any enforceable undertaking with the ombudsman.

“I commend IAG for committing to amending its governance processes to ensure IAG’s board of directors has significantly better awareness of potential non-compliance issues,” she said.

She says corporate compliance culture starts with boards and many “need to do better”, particularly with increased penalties and criminal offence provisions starting next January.

“Large corporate employers need to place a much higher priority on having systems and governance in place that ensure employees’ full lawful entitlements are paid.”