Underpaying staff: What are your rights?

What are my legal obligations to pay employees? What are the rules for paying wages? We look into the Australian Laws regarding paying staff.

Paying Wages

George Calombaris is back in the headlines for underpaying his staff to the amount of $7.83 million dollars. In addition to having to repay all these funds back to his employees, George was also hit with a $200,000 fine. Given that even Australia’s celebrities can fall down in this area, we thought now might be a good time to remind employers of some important issues they need to comply with when paying employees.

What are my legal obligations to pay employees?

Each file of business is governed by certain awards. Every award differs depending on the type of business. While each award will vary in terms of minimum rates etc, there are some items that generally remain the same.

The award will set a minimum wage rate.

The minimum wage for an award rate will vary and may be determined based on the following factors:

Whether the person is employed on a casual, permanent part-time, or full-time basis.

It is important to make sure a person’s basis of employment has been correctly identified. If an employee has worked for an employer for over 12 months the employer must advise the employee that they have the option to convert from casual to permanent part-time.

A casual employee will not be entitled to any personal leave or annual leave but will be paid extra for leave loading as they do not have access to leave.

Permanent part-time or full-time employees are paid less but they receive 4 weeks of annual leave a year and 2 weeks of personal leave each year.

The persons age

Usually commencing at 15 years old the employee’s minimum rate will increase every year until they reach 20 years of age, and then the rate will not change. There are certain exceptions for older employees which will not be dealt with in this article.

It is important to remember that the employees’ wage will increase with each birthday! As such the employer needs to ensure that they have processes in place to make sure they are prompted for times when they need to reassess the employees’ wages.

The type of work they are doing and their level of skill

Each award will list multiple types of jobs and skill levels that the person is expected to have in order to be paid a certain amount of money.  These levels can vary dramatically but when assessing which level the employee rates as it is important to pick the level that best suits the employees’ skill level.

If the employees’ job description reflects a portion of one level but a portion of a different level then the employee must be paid for the level that would receive the highest income. Further, it is important to remember that it is the actual work that is performed by the employee that is assessed and not what is listed in their employment contract or job description.

The day and time that the work is being conducted

Each award varies dramatically in relation to penalty rates but as a general rule the following may apply:

  • Monday to Friday normal hours (38 hours) will be normal hourly rate;
  • Overtime and Saturdays will be time and half.
  • Sunday’s will be double time.

Can I underpay an employee if we have an agreement?

The simple answer to this is no. An employee can not negotiate away their basic rights to minimum wage payments. An employee and employer can come to an agreement in relation to payment but only on the condition that the payment is not less than the minimum wage.

What are the rules for payment of wages?

Wages will need to be paid either weekly, fortnightly or monthly. Wages cannot be paid any later than monthly.

The employer must provide payslips for each payment.

If an employee takes annual leave then the employer must pay the total amount of the annual leave immediately prior to them taking their annual leave.

Do I have to pay leave loading? What is it?

Leave loading is an additional amount that the employer must pay to the employee prior to taking leave. An additional payment must be paid to the employee immediately prior to the leave being taken. Leave loading must be paid where the employee is being paid minimum wage. If the employer wants to pay the employee an amount of money to avoid being categorised as minimum wage then the employer must take into account leave loading.

If I underpay one person I would only have to repay that person if I get caught?

If you underpay your employees and get caught then it is not a simple case of Fair Work looking at that employee’s payments. In most cases Fair Work will assess the complaint of the employee but depending on the outcome, they may and usually do go through an audit every payment to every employee made by you as far back as when the business was established!

If you are found to have underpaid employees then you will have to rectify those underpayments and potentially run a high risk of a fine or penalty being administered. This could result in unforeseen debts that you may not be able to pay. The end result could be as disastrous as bankrupting your business.

What do I need to remember to protect myself with wage rises etc

At the beginning of every financial year, you need to go back and re-assess the minimum wage of each of the employees to ensure that their wages allow for leave loading. At this time also reassess their role descriptions to make sure they are still being categorised at the correct level. You need to create bring up systems as well to ensure that anyone under the age of 20 years receives the incremental pay rises each year on their birthday.

Finally, remember that it doesn’t take much to make sure that you are complying with the fair work act with just a few systems in place. The consequences if you don’t put in place smart systems and processes could be devastating to your business. If you are not sure about your obligations go onto www.fairwork.gov.au or alternatively speak to Forge Legal about your rights and obligations. Whatever you do don’t put your head in the stand like George Calombaris.

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