Positive HR blog

Are you unknowingly underpaying your employees?

Employers found to be deliberately underpaying their employees will now face jail time under new laws passed in the Queensland Parliament. Back in June, Victoria was the first state to pass laws, making it an offence for employers who intentionally withhold wages and other employee entitlements. It won’t be long before the other states and territories follow suit.

The laws come as no surprise. We seem to hear big brands like David Jones, Bunnings and IBM shortchanging their staff almost every day. It makes us wonder how large corporates can get it so wrong. This means that despite our best efforts and intentions, small business owners are not entirely immune from underpayments.


How do underpayments even happen?

In Australia, there are more than 100 industry and occupation awards which outline minimal pay and entitlements. A misinterpretation and calculation of these entitlements are usually the cause of underpayment issues.

It may sound straightforward, but calculating salaries based on awards can be challenging. There are different rates for Saturdays and Sundays, overtime rates, first aid and uniform allowances — and the list goes on.

Miscalculations in pay usually occur when:

  • terms in the award are misunderstood
  • missed increases to modern award minimum wages
  • salaries were incorrectly determined from the start, or the pay was calculated on estimated hours, but then the roster changes
  • general errors, such as payroll, human error or computer errors.


How do I know if I’m underpaying my staff?

Many employers are unaware of an underpayment until an employee makes an underpayment claim. Despite conducting careful internal audits, it can sometimes be an oversight.

But once you have become aware of the issue, you will need to rectify it immediately by auditing the employee(s) industrial instrument (award or enterprise agreement), the rate of pay, employment status, duties and hours of work.

You’ll need to find out how much you have underpaid your employees. The difficulty in this depends on several aspects:

  • the quality of your record-keeping and payroll process
  • the number of employees affected by the underpayment
  • the source(s) of the underpayment.

Depending on the size of the underpayment, you may decide to report your business to the Fair Work Ombudsman (FWO). There is no legal obligation to self-report; however, some businesses decide to do this to demonstrate they are treating the matter seriously and taking steps to correct the mistake.

Employers must backpay all affected employees. It is up to the business on whether you would like to make it during a normal pay cycle, or an out of cycle payment.

It’s important to document all the records of underpayments and the back payments made. Remember you must take into account PAYG taxes and superannuation entitlements.

The worst-case scenario is that you will have to demonstrate to the FWO that you have been proactive in preventing underpayments.


Are your (compliance) ducks in a row?

Most employers want to do the right thing by their people. The problem is interpreting awards can be challenging. It seems the compliance landscape is changing every day, and employers must continuously stay on top of it.

Getting the right advice and support from a workplace relations specialist from the get-go can save you a lot of headaches, legal mess and reputational damage down the track. Get in touch with our friendly team to see how we can help with your HR compliance.