As a business owner, the last thing you want is to end up in the headlines for all the wrong reasons. But with wage theft now a criminal offence, and accidental underpayment increasingly in the spotlight, it’s easy to see how things could go wrong.
Underpaying employees can happen to anyone, and most of the time, they’re not the result of bad intentions. It’s about staying on top of the details. With the introduction of new wage theft laws, it’s essential to understand how accidental underpayments happen and - most importantly - how to prevent them.
Here’s a rundown of 5 common (and often overlooked) ways underpayments can slip through the cracks.
1. Failing to Apply the Correct Award or Agreement
It’s easy to assume that once an employee is hired, you can just pay them what you think is fair. However, not applying the right industrial instrument - whether it’s an award or agreement - can quickly lead to an underpayment situation.
For example, imagine you've hired someone under an individual contract, but they should have been classified under a collective enterprise agreement. If you miss this, you're likely looking at a costly mistake. The 2019 Qantas case is a great example of how 1 simple oversight led to millions of dollars in underpayments - and even more in overpayments.
How to avoid it: Always ensure that the correct award or agreement is applied and regularly review employee classifications. Investing in training for payroll officers is one of the best defences against such errors.
2. Misclassifying Employees
It may sound like a minor detail, but misclassifying an employee's role is a huge pitfall. If your employee’s role doesn’t fit neatly within your organisation’s job titles, it can be tricky to decide which classification they belong to. This can lead to them being paid at the wrong level, which could be an underpayment.
Misclassifications are often more common than you’d think. Even legal experts disagree on where certain positions should fall in terms of classification. This is why regular reviews are key.
How to avoid it: Regularly assess job descriptions and classifications. Take the time to understand the work your employees are actually doing - not just what their title says. Conducting audits or working with an HR consultant can also help you stay on track.
3. Mishandling Overtime and Allowances
Most businesses don’t enjoy tracking overtime. But mishandling overtime pay, or assuming that a salaried employee’s fixed wage covers it, can get you into trouble.
Employees working overtime or receiving allowances are entitled to specific payments, but it’s easy to overlook this, especially when work patterns are more flexible, like with hybrid or remote working. When you assume an overtime agreement is covered in a salary, you might be surprised by the long-term impact.
How to avoid it: Keep detailed records of hours worked, and ensure that your payroll system accounts for overtime and allowances properly. Regularly review these arrangements, particularly if you have flexible work schedules.
4. Overlooking the Minimum Engagement Period
A casual employee may not always be guaranteed a fixed number of hours, but most modern awards and agreements require a minimum engagement period. If your casuals are only working short shifts, but you’re not meeting that minimum time, you’re underpaying them.
Take, for example, the case with an Australian university, where almost 60% of its $22 million in underpayments stemmed from failing to meet the minimum engagement period for casual staff.
How to avoid it: Make sure you're aware of the specific minimum engagement periods for casual staff in your industry. You should be structuring rosters accordingly and compensating employees for time spent working under those terms.
5. Forgetting Long Service Leave
Long service leave entitlements are tricky because the rules vary from state to state. Employers often forget that their employees are entitled to this leave, especially when they’re terminating their employment or dealing with a complex case. Not paying out long service leave entitlements correctly could lead to hefty fines and back-pay requirements.
In fact, the Wage Inspectorate Victoria recently found $1.67 million in long service leave underpayments, with $18,000 in fines to boot.
How to avoid it: Familiarise yourself with the long service leave requirements in your state and ensure your payroll system is up-to-date. If you’re unsure, get in touch with a payroll expert or HR consultant.
The Cost of Ignoring These Issues and Underpaying Employees
Even though accidental underpayments may not carry criminal penalties, they can still come with significant financial and reputational risks. Aside from back-paying your employees, your business could face fines, audits, and even class-action lawsuits.
The key to avoiding these costly mistakes is proactive management and regular audits. If you're unsure where your business stands in terms of compliance, it's time to take a hard look at your practices—and fast.
If you’re concerned about that your current payroll and compliance systems may lead to underpaying employees or you need help reviewing classifications, I can help. As an HR consultant with 14 years of experience, I specialise in ensuring that your business runs smoothly and stays compliant with ever-changing workplace laws.
Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225
Stay tuned for more HR tips and subscribe
DISCLAIMER:
The content provided on this website serves as a general information resource on the subjects discussed, and should not be considered tailored to specific individual circumstances or a replacement for legal counsel. While we exert significant effort to ensure the accuracy of our information, HR Consulting TAS cannot ensure that all content on this website is consistently accurate, exhaustive, or current. Recommendations by HR Consulting TAS and any information acquired from this website should not be regarded as legal advice.
Comments