Common errors that lead to wage underpayments

12 May 2023

The issue of wage underpayments will remain prevalent to corporate Australia in 2023. Following the completion of over 4,000 investigations in 2022, the Fair Work Ombudsman (FWO) has indicated that their focus will only increase, now armed with additional Federal budget funds of $75.2million over four years.

A common error is organisations assessing their Enterprise Agreement (EA) under the incorrect Award; rendering any better off overall test (BOOT) irrelevant and likely leading to underpayment of employees. While EAs are approved by the Fair Work Commission (FWC), organisations are obliged to outline the relevant Awards that their workforce are covered by when negotiating the terms within the EA. Therefore, it is the responsibility of the organisation to ensure that they have assessed their employees under the appropriate Award.

Employers must ensure they are applying the correct industrial instrument (whether it be EAs, Award or contract) to avoid unknowingly paying employees under the incorrect regime. A workforce review should include an assessment of whether the correct industrial instrument is being applied, and each employee’s classification within the industrial instrument, to ensure that employees are receiving the appropriate base rate based on the work being performed and other attributes such as time in their role and certification and qualifications obtained.

Once a review of industrial instrument coverage and employee classification is done, only then can employers review the mechanics of how they are applying the critical elements of the prevailing industrial instrument, such as application of overtime, allowances, shift penalties and loadings which will all be unique the industrial instrument (and potentially to each classification within the industrial instrument). The common issues we see with these elements of pay are:

  • Overtime: Work performed in addition to ordinary hours, instances where the agreement span of hours has been modified could attract overtime.

  • Allowances: Meal allowance, first aid allowance, car allowance, higher duties allowance attracting to certain shifts not being accommodated in pay rules in the Payroll system.

  • Shift Penalties: Afternoon shift penalty, night shift penalty, weekend penalty not being applied correctly.

  • Loading: Leave loading, casual loading not being applied, or not being applied to all shifts.