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How To Help Prevent Wage Underpayment

Published June 18, 2021 -
Employer happy she is paying her employees the right wages

How Does Wage Underpayment Occur

Australian Businesses must pay their employees at least their minimum entitlements for the job they do and the industry they are in. The minimum amount of pay an employee should receive will generally depend on their contract, or the applicable modern award or registered agreement. Underpayments occur due to administrative oversights, payroll errors, lack of knowledge and familiarity with the applicable workplace legislation, and sometimes they are intentional.

Deliberate Underpayment

Deliberate underpayment is not always a conscious decision to pay the employee the wrong wages. It is also deliberate if the employer makes the decision not to correct any payroll errors, and does not take steps to backpay the employee once the underpayment has been identified.

Inadvertent Underpayment

Many underpayment cases occur because employers struggle to identify or interpret the applicable industrial instrument, particularly modern awards, and apply the correct entitlements to their specific employee taking into account the job they do, the hours they work and when they work them. An employee may also not be paid correctly as a result of incorrect payroll calculations.

Mistakes may occur because the employer is unsure which award applies or what classification level the employee falls under given the industry and their occupation. Even if this is known, in some cases, the employer will pay in error due to issues arising from  Award interpretation.  .

Employers should be mindful that the employee’s classification level or pay rate may change as they age, or the employee may be entitled to receive loadings or allowances as they gain more experience, complete further training, assume additional duties or responsibilities and / or are promoted.

Ways To Prevent Underpayment

1. Review Award and Classifications

Make sure your employees are engaged under the correct award and classified correctly under that award according to the job they do and their qualifications and experience, and that this information is entered correctly into the payroll system. Review and update this information regularly particularly if the employee is a trainee, apprentice or a junior, or if they have been promoted or changed roles.

Keep on top of any changes to workplace legislation that might affect your employees’ pay and how you conduct payroll and update your payroll functions accordingly. For example, the Fair Work Commission’s National Minimum Wage Order determines the annual award wage increase and sets the national minimum wage for employees who are award free or not covered by a registered agreement.

2. Audit Regularly

Keep meticulous time and wage records and reconcile what the employee should have earned for the hours worked and when they worked them against what they were paid on a regular basis.

BrightHR has a Blip tool which allows employees to clock on and off so you can track their hours and location. You can generate a report that will show the number of shifts and hours worked, breaks and their duration and the total number of hours worked excluding those breaks.

You can manage and keep track of employee rosters, timesheets, leave and absenteeism to help you pay your employees correctly with BrightHR. You can generate and print reports, and then store wage and time records and related documents securely in the cloud for recordkeeping purposes.

People Management made easy with BrightHR

Find out how BrightHR can help you manage your people and your business.

3. Train Payroll Staff

Make sure that everyone in payroll understands the payroll functions within your payroll system, and how entitlements should be calculated.  Payroll employees should receive regular updates about relevant payroll changes, for example from Employsure, or industry groups or bodies.

4. Superannuation Guarantee

Ensure you are paying your employees the correct amount in superannuation and if the employee’s pay is inclusive of super that it is enough to cover both the super payment and the employee’s minimum entitlement for the job they do and hours worked.

Superannuation is outside Employsure’s area of expertise so please contact the Australian Tax Office (ATO) for information on the Superannuation Guarantee.

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About Employsure

Employsure is one of Australia’s largest workplace relations advisers to small- and medium-businesses, with over 29,000 clients. We take the complexity out of workplace legislation to help small business employers protect their business and their people.

Frequently Asked Questions

  • How Do You Know If You Have Underpaid An Employee?

    You may not know until an employee raises it or the Fair Work Ombudsman conducts an audit. There are a series of steps to follow in order to identify an underpayment.

    First of all, you need to work out if, when and how long the employee was underpaid.

    Check the employee’s time and wages records for any given period to work out how much the employee was actually paid against how much employee should have been paid in wages and other entitlements for that period.

    Then subtract the total amount paid to the employee for the period from the total amount the employee should have been paid – any difference is the underpayment amount.

  • How Do You Avoid Underpayment?

    You cannot necessarily avoid underpayment. However, by  keeping abreast of any changes that may impact your employee’s entitlements, updating your payroll functions and systems, maintaining accurate and comprehensive time and wage records, and conducting regular wage audits you can minimise the chances of it eventuating.

  • Is Underpaying Someone Illegal?

    Yes.  Underpayment is in breach of the Fair Work Act 2009, but it may also be in breach of other legislation depending on the circumstances.

  • What Do You Do If You Have Underpaid An Employee?

    First of all, work out when and how long the employee was underpaid – this is the so-called underpayment period. Note that an employee can only claim backpay through court proceedings for six years after the underpayment occurred.

    Next, check the employee’s time and wages records for that period to work out how much the employee was actually paid, and compare it against what the employee should have been paid for that period. In the event an underpayment it is detected, you should seek formal advice in respect to next steps.

  • Can My Employee Sue Me For Underpaying Them?

    Yes, an employee can claim underpayment of wages.

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