November 19, 2020

Underpaying your employees without knowing it?

Australia’s complex wage system means you may be paying your workers too little without knowing it. In this article, we explore what you need to be looking out for to ensure you’re not underpaying your employees.

How does Australia’s wages system work?

Australia’s wages system consists of different levels of pay and employment conditions, which can be hard to interpret.

At the most basic level, the Commonwealth Government’s 10 National Employment Standards and the minimum wage is the best place to start. These apply to almost all workers (however, some State Government employees are exempt) and generally can’t be contracted out of.

On top of these standards are modern awards. These cover employees by individual sectors and their experience. And, they provide penalty rates and overtime.

Outside of modern awards are modern agreements including enterprise agreements. These are significantly more defined, developed for specific businesses or groups of businesses.

Finally, an organisation might develop their own employment contracts which are agreed between the business and the employee. These can offer better conditions than the above awards and agreements, but can’t offer anything less than described. An agreement can be in writing, but can also be verbal, based on practice or even custom. These agreements can be developed into a contract without you knowing it – for example, you might verbally agree with your employee on a 10 per cent commission, despite it not being written in the contract.

What’s the minimum wage in Australia?

The minimum wage for a full-time worker is currently $19.84 an hour, or $753.80 for a 38 hour week. But it’s important to remember that this is for permanent employees only.

Casual workers must also receive a 25 per cent loading as they don’t receive paid annual leave, sick leave or other entitlements. That means if you’re choosing to employ casual staff, the minimum you can pay them is $24.81 an hour. That said, this is the minimum wage for adult workers who are at least 21 of age. If an employee is under 21, they may not be entitled to this full amount. Instead, it’s a percentage based on their age.

Exactly what percentage? This depends on the industry they’re working in. This is something that employers need to be aware of. If you’re curious to know what the industry rates are for juniors, you can view the Fair Work website.

What are other things to be looking out for?

Generally, employers are pretty good when it comes to paying employees the right wage. Where I’ve witnessed discrepancies, is often around entitlements outside of wages. Think overtime, overnight hours or working on a public holiday. These payments are covered by awards.

What about experience? Some employees are entitled to a higher rate of pay due to their seniority and experience. For example, an employee who supervises others or is more skilled should be paid more. And, depending on the industry and role, some employees are entitled to allowances, as well as leave loading – these too can sometimes be accidentally ignored.

So, what about unwritten contracts?

Another challenge – one that can be complex – are entitlements that haven’t been agreed in writing. These entitlements could be part of workplace culture or verbally agreed.

For instance, you might pay staff 15 per cent superannuation, offer a commission structure even though there’s no entitlement under an award agreement or written contract. If you’re not careful, employees can argue that they have a contractual right to keep receiving it, even if you’ve always seen it as discretionary.

Underpayment of employees – some examples

As a business owner, it’s your job to be aware of any changes and to ensure that employees are being paid fairly. Here are some scenarios that I’ve personally witnessed, where employees have underpaid their employees without even realising it:

  • A junior employee has recently celebrated her birthday turning 18. As a result, her rate of pay should increase by 10 per cent under the award.
  • An employee agrees to work a Saturday shift to cover another co-worker but receives their usual rate of pay instead of overtime.
  • Two employees choose to swap shifts – with one being on a Sunday, which hasn’t been accounted for in payroll.
  • The employer promotes a worker to a new role but doesn’t account for the change in their award category.
  • Several awards with different entitlements cover one workplace but the employer treats and pays all employees the same.

How to ensure employees are being paid properly

If you’re looking to avoid underpayment, there are several things you should do.

  1. Regularly perform an award and agreement audit. Ensure that there haven’t been updates to agreements.
  2. Work out what you’ve agreed. If you now have other agreements in place, be very clear on what they are.
  3. Put it in writing. To avoid ambiguity, record everything.
  4.  Sign contracts. If you need to, encourage employees to sign a contract to formalise their arrangements.
  5. Set up payroll properly. Many businesses, especially small ones, fall down when it comes to execution. Get your payroll right.

Still have questions regarding awards and agreements?

It’s a complicated space. At Catalina Consultants, we’re human resources professionals and have a thorough understanding of this space. If you require any assistance regarding workplace agreements, payment rates or contracts, feel free to reach out to us today.

say hi to our author

Merilyn founded Catalina Consultants in 2012 on the belief that all organisations, regardless of size, should have access to top quality bespoke HR services. She enjoys working closely with her clients and believes that the best results are built on relationships of rapport, trust and authenticity. Growing up, Merilyn had her sight set on stardom and dreamed of becoming an actor. She also sang and played the piano, but ended up studying accounting and HR. Whilst she hasn’t won her Grammy just yet, she still loves a good karaoke night. Merilyn loves to travel with her family, with South Africa being one of her most memorable destinations.

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