Even with the best of intentions, accidental underpayments can happen to any business of any size, or industry, caused by anything from misinterpretations of awards to simple human error.
With wage theft set to become a criminal offense by January 2025 and recent high-profile cases of underpayment making headlines, it’s vital for employers to understand the difference between wage theft and accidental underpayment.
Wage theft involves deliberate actions like withholding wages or intentionally misclassifying employees to cut costs, and it’s this behaviour that will be criminalized.
While accidental underpayments won’t lead to criminal charges, they still carry serious civil penalties, emphasising the need for employers to remain vigilant
To protect your business from the ramifications of an accidental underpayment – Here are some common ways employers might underpay, and how to avoid them:
- Incorrect classification: misclassifying employees, such as treating a full-time employee as casual, can lead to incorrect pay rates. Ensure you classify employees correctly under the Modern Awards and Fair Work legislation.
- Failure to update awards and agreements: pay rates and entitlements under Modern Awards are periodically updated. Failing to implement these changes promptly can result in underpayment. Regularly check for updates from the Fair Work Commission.
- Misinterpreting overtime and penalty rates: misunderstanding or overlooking when penalty rates or overtime apply can lead to paying employees less than they’re owed. Familiarise yourself with the specific Award or Enterprise Agreement relevant to your industry.
- Unpaid breaks or incorrect breaks calculation: employees are entitled to specific break times based on the hours they work. Incorrectly calculating break times or not paying employees for required breaks can lead to underpayment.
- Incorrect superannuation contributions: employers must pay superannuation on all ordinary time earnings. Misinterpreting what counts as ordinary time or failing to calculate it accurately can lead to insufficient contributions.
Best Practices to Prevent Underpayment
- Regular audits: conduct regular audits of your payroll to ensure compliance with all relevant laws and Awards.
- Employee contracts: clearly outline pay rates, classifications, and entitlements in employment contracts.
- Training: ensure that payroll staff are well-trained in current laws and regulations.
- Consulting experts: if in doubt, consult with HR professionals or legal experts to ensure compliance.
If you need assistance with this, contact your local HR Dept.