Employment Law

Employment law tips: Underpayments

Underpayments, or the more commonly used phrasing of “wage theft”, is something that is continuing to catch media attention. High profile cases of underpayments have come from retail giants such as Woolworths, David Jones, Country Road for example. The everyday consumer demands greater transparency and accountability, which means that bad press in relation to this matter can have tarnish your brands’ reputation and have long-lasting implications on consumer perception. This is why having your employment agreements reviewed by experts is so important.

What is the relevant legislation?

Australia’s employment law framework is complex and governed by the Fair Work Act 2009 (Cth) (Fair Work Act), modern awards, and enterprise agreements as well as other instruments such as individual agreements and contractual rights. This creates a somewhat intricate system that provides varying minimum wages, overtime, penalty rates, loading and allowances.

How do you avoid underpaying staff?

We recommend that businesses take a proactive approach to mitigating their employment law risks. The best place to start is by understanding what your obligations are and what legislation is applicable to your employees and your business. The following employment law steps can assist in ensuring your organisation is compliant:

  • Review your employment contracts to ensure they are meeting your obligations under the applicable modern award, enterprise agreement or the Fair Work Act 2009 (Cth). If there is any concern, seek legal advice from an employment lawyer;
  • Determine employees’ minimum entitlements, including the applicable rates of pay, any overtime and penalty rates;
  • Review and update all employee information on your database to ensure that it is in alignment with any updates in the employment law, such as the National Employment Standards; modern awards, enterprise agreements or relevant case law; and
  • Conduct regular governance reviews to ensure that there are appropriate payment mechanisms and that nothing falls through the cracks.

What if you have uncovered an underpayment?

If you have underpaid your staff in contravention of the relevant employment laws, we recommend that you act quickly to rectify the error.  Consider the following:

  1. Determine the period that the employee has been underpaid. Depending on when the mistake first arose and how long an employee has been working in the business, the underpayment could be over just 1 pay period or could span over several years.
  2. Determine much the employee was actually paid.
  3. Calculate what the employee was entitled to be paid. 
  4. Calculate the difference between what the employee should have been paid and what the employee was actually paid. 
  5. Backpay the employee as soon as possible as either part of a normal pay cycle or as a separate payment. This back payment must be recorded on the employees pay records.

Gladwin Legal regularly assists businesses with their employment law matters. If you have any questions, please contact us today.