Paying The Correct Wages: Wage Compliance Made Simple

Paying your staff isn’t as straightforward as choosing a rate that 'feels fair' and adding a little extra for overtime. As with most aspects of running a business, paying the correct wages involves navigating a maze of rules, involving modern awards, employee classifications, penalty rates, allowances, casual and leave loadings, overtime triggers, and more.

It’s easy to assume you’re doing the right thing, especially if you’re paying above what you think the market is paying. But unless your pay structure matches up with the legal requirements under Fair Work, you could still be underpaying staff without realising it. And those small mistakes can add up quickly and result in substantial back-pay.

A business owner we recently helped thought he was more than fair with his team’s pay. He had payroll software in place, had issued employment contracts, and paid what he believed were generous rates.

Then a Fair Work audit revealed years of underpayments which were caused by a mix of misclassifications and incorrect penalty rates. The back-pay bill ended up in 5 figures.

He wasn’t trying to cut corners, he simply didn’t realise how complex wage compliance is, and unfortunately there are many business owners in the same boat.

So what steps should you take to make sure you get it right?

Start with the Right Award and Classification

Everything flows from here. If you get this wrong, everything else will be wrong too.

• Check the correct Modern Award. Don’t assume the one you’ve always used still applies. Different roles (or even the same role in different businesses) may fall under different Awards. For example, most workers at a fruit farm may fall under the Horticulture Award, but the office staff may fall under the Clerks Award.

  Use these resources from Fair Work to help you identify the correct award for your employees - and if you're not sure, get in touch.

  
  

  https://services.fairwork.gov.au/find-my-award

  https://www.fairwork.gov.au/employment-conditions/awards/list-of-awards

  
  

• Confirm the right classification. Even if you’ve got the Award right, using the wrong classification level is a common trap that leads to underpayment.

  Check the 'Classifications' section of the award (usually in a schedule towards the end). It will detail characteristics, duties and skills for each level to help you decide, based on what your employees actually do day to day.

  
  

• Watch for Award-free roles. Some roles are not covered by an Award (ironically HR is one of them). If a role genuinely has no Award coverage, you still need to check against the National Employment Standards (NES) and industry benchmarks to ensure pay is fair.

  
  

💡 Tip: Awards are updated regularly. Reviewing them 'every couple of years' is not enough, so you should do it at least annually, ideally just into July after wage increases are announced.

Subscribe to our fortnightly newsletter - 'The Handy HR Hub' - and we'll send you reminders of upcoming wage changes and other updates.

Understand the Extras: Allowances, Loadings, Breaks and Overtime

Once you've found the correct award and classification, it’s not just about the base pay rate.

Wage compliance also means applying:

• Allowances (e.g., travel, tools, uniforms, industry allowances)

• Penalty rates for weekends, public holidays, and late/night shifts

• Overtime rules (including when overtime starts under your Award)

• Meal and rest breaks - and what happens if they’re missed

• Casual loading - 25% must be applied unless another lawful arrangement exists

• Annual Leave loading - if your Award or contract requires it (generally 17.5%)

These will all be detailed within the Award, and by missing just one of these, you risk underpaying staff.

Apply the BOOT for Salaried Staff

If you pay staff on an annual salary, you can’t just set a figure and assume it covers everything.

Under the Better Off Overall Test (BOOT), the salary must leave employees better off than if they were paid strictly under the Award.

This means checking whether their salary covers:

• Penalty rates

• Overtime

• Allowances

• Leave loading

  
  

If it doesn’t, top-ups are required. Ignoring the BOOT is one of the most common ways salaried staff end up being underpaid.

If you need some help with these calculations to make sure you're covered, get in touch.

💡 Tip: On a side note, for salaried employees it's also important to include an offset clause in the employment contract. This clause makes it clear that the salary is intended to cover overtime, penalties, and allowances, otherwise you may still need to pay those on top of the salary, leaving you exposed.

Don’t Rely Solely on Payroll Software

Payroll and rostering software can definitely save time, but it’s not a set and forget solution. It only follows the rules you put in. If the settings are wrong, the pay will be wrong and you’ll still be non-compliant.

Review your system settings at least twice a year to make sure:

• Pay rates and classifications are correct

• Penalty and overtime rules are accurate

• Public holiday rates apply properly

• Breaks are set up correctly

• No rounding rules disadvantage staff

Keep Detailed and Accurate Records

Under Fair Work rules, you must keep detailed records of hours worked, overtime, breaks, and any deductions. If you don’t, and there’s a dispute, Fair Work may well accept the employee’s version of events as fact.

Practical steps to tighten record keeping include:

• Regular payroll audits to pick up small errors before they become larger ones

• Storing timesheets and records in a central, secure system

• Keeping updated on any changes to record keeping requirements

  
  

It sounds tedious, but good records can be your best defence if there is ever a dispute.

Capture All Hours Worked

Wage underpayments can often come from small, untracked amounts of work rather than incorrect base rates.

• Capture all hours worked, including before and after rostered shifts

• Do not ignore short 'off the clock' tasks that can add up over time

• Use a reliable, easy-to-use clock-in system

• Train managers and staff on the importance of accurate timekeeping

  
  

If you have salaried employees, do not assume they are automatically exempt from penalties or overtime. Many still qualify under the Award, and failure to track hours could leave you exposed.

Why Paying The Correct Wages Should Never be 'Set and Forget'

Underpayment scandals don’t just hit big companies (they're just the ones that make the news). Plenty of small and medium businesses get caught out, and the impact can be even more damaging.

Big companies can absorb the financial hit and reputational fallout. For a smaller business, one compliance mistake can be the difference between staying afloat and shutting down.

Awards change, rules change, and your business evolves, so make sure to treat wage compliance as an ongoing process, not a once-a-year admin task.

Book a free discovery call today. Let’s make navigating the maze of Awards, Classifications and paying the correct wages the least of your worries.

Get in Touch

Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225  

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