An audit today keeps the Fair Work Ombudsman away: a practical guide for how businesses can avoid being caught out for underpayment

Posted by October 04, 2022 | Articles | No Comments

An audit today keeps the Fair Work Ombudsman away: a practical guide for how businesses can avoid being caught out for underpayment.

By Nicholas Morrison, Law Clerk.

What do you need to be aware of?

An all-too-common pitfall for Australian employers is the risk associated with underpayment or falling behind on employee entitlements. In Australia, the pay and work entitlements of employees are primarily governed by the National Employment Standards and any applicable Modern Award; however, employers should also be aware of other entitlements that may arise from Enterprise Agreements, legislation, or employee contracts.

The National Employment Standards outline the bare minimum entitlements belonging to all workers in Australia.  This includes the minimum wage, maximum working hours, the right to request flexible working arrangements, the right for casual employees to be offered or to request permanent employment, leave entitlements, and rights regarding public holidays.

Additionally, workers may be covered by a Modern Award. Modern Awards add to the minimum standards in the National Employment Standards for those within certain industries, occupations, or work for certain classes of employers. Modern Awards may, for example, confer a higher salary, extra leave entitlements, or other additional benefits.  Whether an employee is covered by a Modern Award depends on whether their job meets the award’s eligibility requirements. A Modern Award will apply to the worker regardless of whether the worker or employer are aware of its application.

Why it’s important to be aware of employee entitlements: a case example

Arundell & Ors v Macquarie Bank [2020] FCCA 2720.

In the case of Arundell the employees were a group of advisors employed by Macquarie Bank. Under the advisors’ contracts they were to be paid a base pay of $60,000 per year; however, in practice, some of the advisors yearly take-home pay was close to $1 million by way of commission.  Despite their stellar pay, the advisors were still covered by the Banking, Finance and Insurance Award 2010 which provided for Macquarie Bank, as their employer, to provide them additional benefits.  The purpose of the base pay was to set-off the employees’ award entitlements such as minimum wage and leave whilst the majority of the advisors’ income were to come from what they earnt by commission.  The judge found that, despite the advisors’ high pay, the employer still had not specifically paid for leave entitlements under the Award for which Macquarie was required to reimburse them.

Employee obligations and consequences

Under the Fair Work Act 2009 (Cth) (‘Fair Work Act’) an employer must not contravene a provision of the National Employment Standards or contravene a provision of a Modern Award.  Employers often fall victim to the confusion that just because a Modern Award covers an employee, it applies to that employee, which is not always the case.  Multiple Modern Awards may cover an employee due to the nature of the employee’s work but only one Modern Award can apply to an employee at any one form of employment.  This is important because it is only when a Modern Award applies to an employee that they are entitled to its benefits.  When determining which award applies the Court considers which award is the most appropriate to the work performed, any exclusion clauses within the award, and whether any other provisions under the Fair Work Act or other agreements apply. Once an employer has determined which award applies to their employee and what entitlements that award provides, it is also important to remember that awards and minimum entitlements in the National Employment Standard may be updated which may increase pay, leave, and other employee entitlements during the lifespan of that employee’s employment.

A breach of a National Employment Standards or Modern Award provision constitutes a civil remedy provision.  At a minimum a Court may order the employer to repay the employee the value of their entitlements.  However, the Court may further order that the employer or the business pay a pecuniary penalty; up to $13,320 for an individual employer or $66,600 for the business.  If the Court finds that the breach was a ‘serious contravention’, it may impose higher penalties, which may be up to ten times the amount for a pecuniary penalty for both an individual employer and a business.

How to keep on top?

Figuring out what your employees are entitled to and making sure you’re on top of any changes or new developments is a challenge for both big and small businesses. However, there are some practical steps you can take to make sure you don’t fall behind:

  1. Regular audits: Have an accountant, human resources professional, or employment lawyer audit your business annually to ensure that you’re applying the right award and providing the correct entitlements.
  2. Record keeping: Under section 557C of Fair Work Act, if an employee alleges that their entitlements were not paid, and the employer was required to keep but did not keep records of that entitlement, then the employer has the burden of disproving the employee’s claims. It’s important to keep an up-to-date and well organised system of employee records to protect yourself, and your business, from complaints.
  3. Training of payroll and human resources staff: Simply being correct as to what awards apply and their entitlements are not enough, you need to ensure that you are also paying these entitlements. Ensure that all payroll and human resources staff are up-to-date with the latest requirements along with how those requirements change for different situations such as overtime of public holidays. If possible, and to promote consistency, create internal guides for payroll staff, in doing so payroll staff will have something to refer back to when unsure, all payroll staff will work off of the same information, newer staff can be trained up on it, and any new developments can be edited and redistributed within these guides making any changes clear and accessible.
  4. Subscribe to updates from the Fair Work Ombudsman: The Fair Work Ombudsman both educates and enforces laws governing workplace relations in Australia. Along with their website providing further information you can also subscribe to their emailing service which will provide you with up-to-date information on important workplace issues.
  5. Diarise the 1st of July: Annual wage increases and Modern Awards are updated yearly and come in to effect on the 1st of July. Diarise this date to remember to check that all employees are getting paid at least the new minimum wage from that date onwards.
  6. Consider market rates: Consider how much your employees are getting paid in relation to the rest of the market. If your employees were initially paid above market rate but now are lagging behind this may be a warning sign that they’re being underpaid.

MDC Legal advises both employees and employers on employment entitlements, as well as the availability and risk of any potential claims including underpayment or breaches of an award. For employers, we perform employment contract audits to assess Modern Award coverage, provide advice regarding employee entitlements under awards, and help employers who discover they have breached an award. For employees, we help calculate and advise on potential breaches by employers.