UNDERPAYMENT AND HOW TO FIX IT

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Why underpayment is a serious issue

There have been a number of headline articles in the papers recently about employees being underpaid. In some cases, this has been a deliberate attempt by an employer to circumvent minimum standards. However, it is often the case with smaller businesses that the underpayment has arisen simply from a misunderstanding of the relevant minimum standards. Many small businesses rely on modern award wages as their relevant standard. Modern awards are, however, complex documents that can easily be misunderstood or misinterpreted by employers who lack professional expertise in law or human resources. This is less problematic for larger organiSations that have the resources to have teams of professionals oversee these important steps. 

Nevertheless, the standards apply uniformly across all businesses, irrespective of their size or access to resources. 

Where underpayments have arisen from an error or misinterpretation, often the remedy is simply to repay the money that is owed. In some cases, the FWO may issue infringement notices requiring the payment of a small fine. 

However, where a court finds that a business knew they were contravening a lawful obligation, or the contravention was part of a systematic pattern of conduct, higher penalties (and even jail time in some jurisdictions) can result from underpayment of wages.

Understanding how to avoid underpaying employees 

Modern payroll software often has the ability to automatically update itself to include the correct minimum award wages. For some businesses, this information is invaluable. However, it is only the first step. Having the correct minimum award wages, penalty rates, overtime rates etc. is important, however, the software still requires the correct inputs in order to ensure payroll compliance. 

For example, looking at many of the high-profile underpayment cases in recent years, a common trend has emerged whereby employers are paying the correct modern award wages, but for the wrong classification level under the modern award. 

In other examples, underpayments have arisen as a result of the wrong overtime rules being input into payroll software (this has been particularly prevalent in the hospitality sector in relation to annualised salary arrangements). 

The best way to ensure that you are paying staff correctly is to seek professional advice on how the relevant modern award, enterprise agreement or contract of employment applies to your employees. At the very least, employers using modern awards should take steps to educate themselves on:

  • How the classification structure works under their modern award;
  • What the minimum base rates are for those various levels or grades; and
  • What penalty rates, overtime rates, allowances or other separately identifiable amounts are required in addition to that base rate, and when do they apply.

What to do if you find you are underpaying someone

If you do identify an underpayment issue, the priority should be to rectify the issue and makes changes to avoid the issues persisting.

The first step in this process is to determine what the employee should have been paid/should be getting paid. This will require a wage review of the modern award, enterprise agreement, and/or their contract of employment. 

Once this has been established, you will then need to access your employee records. In particular, records of employees’ working hours and payslips.

Using this data, write down the total amount that the employee was paid for the underpayment period. The total amount is the gross amount that your business had to pay the employee before tax was deducted, not the amount the employee was paid, for example, into their bank account.

Next, you will need to calculate how much the employee should have been paid in total during the underpayment period. Calculate this based on the employee’s pay rate, the number of hours the employee worked, and when.

When you have completed that process, you should have two figures – total amount the employee should have been paid (x) and the total amount that the employee was actually paid (y).

amount x – amount y = the underpayment amount

Getting professional advice from the experts

Understanding your obligations as an employer can be complex. Whilst there are ways to resolve contraventions, they can be extremely costly and stressful. 

The best approach to managing these obligations Is to be a proactive employer and seek professional advice now to avoid these issues manifesting or multiplying.

This is when it makes good business sense to contact the expert team who can take you through all your obligations and look after matters for you. That expert team is Clyde Industrial.

Having the best of professional advice takes the hassle and stress out of the equation, allowing you to get on with running your business.

For quality service that is cost-effective and accessible whenever you need it, contact Clyde Industrial today.