Underpayments: Ultimate guide for Australian employers
Australia has been grappling with a notable employment issue lately – underpayment. We’ve seen some big names caught up in scandals for underpaying their employees. PWC’s research puts the figure at a staggering $1.35 billion in underpayments annually across Australian companies. A notable issue, indeed!
However, it’s crucial to understand that not all underpayments are intentional. But it’s a big deal for both employees and employers when they do happen. There’s the risk of damage to reputation, financial strains, and even legal troubles.
Now, to steer your organisation clear of such headaches, let’s break down what underpayment is, look at the consequences of non-compliance, and lay out some straightforward steps to ensure your employees get fair pay and your company stays compliant.
What is underpayment?
Underpayment, or wage underpayment, occurs when employers fail to provide their employees with the minimum entitlements set for each industry and specified in applicable awards. These entitlements cover various aspects such as wages, overtime rates, allowances, payment for annual leave, and other legally mandated benefits.
Note: Employers can unintentionally underpay their employees due to honest mistakes. The critical distinction lies in the intent, as it’s only considered “wage theft” or a criminal offence when believed to be deliberate.
When discussing unintentional underpayment of wages and other benefits, here are some common errors that employers often make:
- Issues with documenting the hours employees worked.
- Misclassifying employees or using the wrong award rates.
- Flaws in employment contracts that result in incorrect base rates.
- Mistakes in payroll processing, such as miscalculations or inaccuracies in processing wages.
- A lack of understanding regarding what constitutes fair pay for an employee’s position, especially if the job title doesn’t accurately represent the worker’s actual responsibilities.
Consequences of underpaying employees
While accidentally underpaying employees may not be considered wage theft or a criminal offence, it can still threaten businesses, especially when underpayments accumulate over time.
The potential penalties can be substantial, reaching up to $13,320 per infringement for an individual and $66,000 for a company.
And, if the wage underpayment is deemed a severe infringement, the stakes get higher, with penalties of up to $133,200 for individuals and a whopping $666,000 for companies. These penalties come on top of the need to rectify any unpaid wages or benefits and inevitable reputational damages.
Deliberate underpayment in Victoria carries significant consequences, with fines potentially reaching up to $218,088 or leading to imprisonment for individuals and up to $1,090,440 for companies. Similarly, wage theft is treated as stealing in Queensland, opening the possibility of imprisonment for up to 10 years.
To further promote a fair work environment for all Australians, the recent enactment of the “Closing Loopholes” laws will soon classify underpayment as a federal offence – starting from January 1, 2025. This crucial change implies that employers intentionally underpaying their workers could be subject to severe penalties, including up to 10 years in prison and fines reaching as high as $7.8 million.
How to avoid underpayment?
Now that we’ve covered what underpayment is and its significant consequences let’s dive into steps you can take to prevent it.
- Ensure compliance
Stay updated on employment laws and awards relevant to your business to ensure your payment operations remain compliant.
- Maintain records
Keep employee records of pay and hours worked as this allows for transparent reviews, and it’s also a legal obligation under the Fair Work Act 2009 (Cth), requiring the maintenance of these records for seven years.
- Conduct audits
Regularly check your payroll processes, review how employees are classified, and document working hours. This way, you can identify and fix any discrepancies before they escalate.
- Educate all employees
Ensure your payroll staff stays well-versed in current regulations and provide comprehensive training to all team members about their entitlements.
- Foster open communication
Maintain open communication with employees about their payments and encourage them to report any concerns promptly and without fear.
- Seek professional advice
Connect with employment specialists proactively to address concerns before they arise and guarantee that your organisation’s payment practices align with legal requirements.
Avoid and solve wage underpayments: The smart way
Minor issues can snowball into significant problems. And, even though the new wage theft law becomes active on January 1, 2025, now is the perfect time to ensure your organisation is compliant, free from any wage underpayment occurrences, and has robust processes in place to maintain that compliance.
At Fresh HR Insights, we’re here to assist you in gaining a deeper understanding of underpayment, establishing lawful practices, conducting audits, and addressing any complications that may arise.
Given the uniqueness of each situation, our experienced employment specialists encourage you to reach out and schedule a free consultation. Let’s discuss the best options for providing fair pay to your employees while maintaining your company’s compliance and reputation.
Did you know??
HR managers, payroll and administration personnel and advisors may be liable as an accessory if their employer breaches the Fair Work Act.
- Are you responsible for HR, payroll or administrative functions?
- Do you try and obtain accurate advice?
- Do you alert clients to possible breaches?
- Do you actively question instructions if you have doubts regarding legality?
If not, you may be at risk of personal fines under Section 550 of the Fair Work Act 2009.