For any employer caught underpaying staff, it can be costly both financially and for the business’ reputation and future.
Even putting to one side the potential implications arising as a result of newer and/or impending wage theft legislation, for employers found guilty of underpaying staff through enforcement litigation brought by the Fair Work Ombudsman (FWO), the ramifications are serious and can include (in no particular order) reputational damage, orders for back pay and significant monetary penalties. Monetary penalties can be ordered not just against employer entities but also against individuals involved in contraventions, such as company directors and managers.
Here are some common ways in which underpayment contraventions frequently occur:
Not knowing which Award applies, or applying the wrong Award
This happens more often than you would think. Are you relying on good advice, provided by those who actually know? If you’re not, you should be. Many employers either do not understand that an Award applies to their staff, or are proceeding on wrong advice as to which Award applies. Also, many employers and managers are of the misunderstanding that if they pay their employees above Award rates then that means the Award does not apply (news flash, it doesn’t mean that – and if this is you, you need advice right away).
Not properly understanding the Award’s provisions
Where employers and managers don’t fully understand the provisions of an applicable Award and when and how the provisions apply, that is a recipe for a high-stakes disaster. All employers should fully understand how and when an Award applies and how to ensure compliance with the particular Award. The appropriate payment of allowances and loadings are “sitting ducks” for this issue.
Short-paid hourly rates, penalty rates, overtime
This is probably the most common form of underpaying staff. Employers should be regularly auditing the pays of their employees, particularly (but not only) those employed under Awards, to ensure that they are paid an amount which is at least equal to the minimum rate prescribed by the award.
The deprivation of statutory leave
Some employers deprive their employees of accruing and/or taking leave. Ensuring accurate employee record-keeping and associated obligations are met should avoid errors. Payroll software malfunctions do happen though, and mistakes occur, so errors should be rectified quickly.
Inappropriate deductions from wages
There are very specific requirements around when deductions from an employee’s wages can occur. If you don’t know what those requirements are, and you are compulsorily deducting sums from your employees’ wages, then you need to get advice.
Work performed ‘off the books’
Employers who engage in this type of worker underpayment not only risk being prosecuted and fined by the FWO, but also by the Australian Tax Office and relevant State Revenue Office, among other governing bodies.
Sham contracting
Sham contracting is claiming that a worker is a contractor when they are actually an employee (often done to avoid paying employee entitlements). It is an offence under the Fair Work Act 2009 (FWA) and significant penalties apply.
Unpaid work experience, internships, volunteers
Employees must be paid unless they are on a vocational placement as defined by the FWA. Generally, unless the work is required by an authorised education or training course, workers will not be on a vocational placement. Unpaid work experience placements and internships are less likely to involve employment if:
- they are mainly for the benefit of the person (rather than the company engaging them);
- the periods of the placement are relatively short;
- the person is not required or expected to do productive work; and
- there is no significant commercial gain or value for the business derived out of the work.
Commission-only arrangements
Unless an award specifically permits it, commission-only arrangements are generally a no-no and can bring significant risk to an employer.
If you think that there is even the slightest chance that your business may not be fully complying with your obligations as an employer when it comes to avoiding underpayment, reach out to us and we will help you to navigate and address the issues.
