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Ask Our Specialist: Understanding and avoiding underpayments.

Ask the specialistJuly 30, 2018

Ask Our Specialist: Understanding and avoiding underpayments. (Last Updated On: December 5, 2018)

Underpayment is a big issue right now, with more pressure than ever being placed on businesses to correctly pay their staff. Sometimes underpayment is deliberate, other times it’s accidental — but whatever the cause, the outcome is the same: intense scrutiny and hefty fines from the Fair Work Ombudsman.

This week our Employsure Expert takes a closer look at underpayments and what business owners can do correctly pay their staff and protect themselves from claims of underpayment.

Understanding Modern Awards.

Australia has one of the world’s most complex Award systems with over 120 Modern awards covering the majority of employees in Australia. It’s little wonder business owners find it hard to navigate this complex system.

Modern Awards provide an outline of the minimum entitlements which employees are entitled to. They primarily cover wages and conditions (eg. type of employment, overtime, penalty rates, allowances, superannuation and leave entitlements), and are intended to reflect specific aspects of particular industries and occupations.

Modern Awards outline occupation and industry specific entitlements that are usually above and beyond those contained within the National Employment Standards (NES), which outline 10 minimum standards for employment. By combining the collective effect of the Fair Work Act 2009, NES, and Modern Awards, employers should be able to completely understand the rights and entitlements relevant to their employees.

This is important because every employee should be treated fairly, and if a business or employer is unaware of their obligations, they may find themselves under scrutiny, with the possibility of action being taken against them.

Understanding the Minimum wage.

Understanding minimum wage in Australia is one of the most important elements to maintaining the effective cost structure when running a business. There are certain standards set in place by Fair Work Australia which dictate minimum grades of pay for different job roles across all industries, and if you aren’t fully aware of the applicable minimum wages, you could find yourself underpaying your employees.

While there are different minimum wages for different job types and Awards, each of these stems from one core minimum wage which all businesses in Australia must abide by. The current National Minimum Wage (as of 1 July 2018) is $18.93 per hour, or $719.20 per 38-hour week (before tax).

In addition, casual employees covered by the National Minimum Wage must receive a casual loading of at least 25%.

If an employee is covered by a Modern Award or Enterprise Agreement, their rate of pay will be calculated in accordance with the terms and conditions of the Modern Award or Enterprise Agreement under which they are covered.

When it comes to working out your employees’ minimum wages, you also need to factor in their minimum entitlements under the relevant Award or Agreement. These are differentiated across a variety of factors such as industry, job type and experience in the role. It is important that employers investigate each of their employees’ Awards and Agreements to understand the minimum entitlements.

Understanding Penalty rates.

Employees often get compensated, by way of higher hourly rate for working late nights, early mornings, weekends or public holidays. Penalty rates come from the Modern Award or Enterprise Agreement and they are different for each industry and job. Employees who are not covered by an Award or Agreement and who are covered by the National Minimum Wage, do not get penalty rates unless parties agree to such arrangements.

Understanding Overtime.

What is considered overtime is different under each Award or Agreement. Overtime is usually any work in excess of 38 hours a week, or outside the ordinary hours listed. Overtime is often paid at a higher wage (such as time and a half). Instead of being paid an overtime rate, depending on the terms of the relevant Award, an employee may be able to take time off instead. This is called time in lieu (TOIL). The conditions of overtime will always be determined by way of reference to the Award or Agreement. Employees who are not covered by an Award or Agreement will not be paid overtime unless their contract says they do.

Understanding Allowances.

Allowances are additional payments made to employees for a variety of reasons such as doing certain tasks, using certain skills, working under certain conditions or using personal tools at work. For example, an employer may decide to pay an employee an allowance using their own car to carry work materials or they may be asked to wear a special uniform that requires cleaning. It’s important that you always check the relevant Award or Agreement for the specific employee because allowances in each industry will vary.

Stay Informed.

To protect their business, it is essential employers maintain a sound understanding of the interaction between the NES and any applicable Modern Award and how it works within their business. Wage rates and obligations also update from time to time, particularly around the new financial year on 1 July, and it is the employer’s responsibility to keep up to date with any changes.

Get Up-To-Date Advice.

Being fully aware of Australia’s minimum wage order and wage rates within different industries is vitally important to protecting your business. Stay up-to-date with your obligations as an employer by calling the 24/7 Employsure Advice Line on 1300 651 415.

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