Top 10 Causes of Underpayments

Underpayments

The Fair Work Ombudsman has made it clear they are cracking down on underpayments! In 2020-21 the Fair Work Ombudsman recovered more than $148 million for underpaid workers, a record sum of back payments and entitlements. With more and more businesses being audited by Fair Work it is important to your employees are paid correctly. The new year is a good opportunity to review your pay rates so your business complies. 

There are two key reasons why the issue of underpayment is so prevalent recently. The first is that awards have become increasingly complex and difficult to understand, making misinterpretation by employers trying to do the right thing a common occurrence. The second reason is that employee union and regulator scrutiny has increased. These two reasons combined has resulted in a significant increase in underpayments identified across all industries in Australia.

There are several key risks to be aware of. The following are the 10 most common causes of underpayments we see at ProcessWorx.

  1. Applying the wrong award to employees. Employees are classified under the wrong Award for the work they perform.
  2. Misclassifying employees as contractors. Contractors are not entitled to the same privileges as permanent employees, so misclassifying employees as contractors can result in underpayment of entitlements like leave and overtime.
  3. Misclassifying employees as casual. The combined value of permanent employee entitlements is likely to be more than the 25% casual loading, resulting in underpayment for employees who are incorrectly classified as casuals.
  4. Wrongly assuming staff are too senior to be covered by an Award.
  5. Incorrectly calculating annualised salaries or flat hourly rates of pay by not accounting for all the entitlements and allowances in the Award.
  6. Not having individual flexibility agreements (IFA’s) that accurately reflect what is included in flat rates and salaries.
  7. Payroll errors. Simple payroll errors can result in underpayments when the rules have been applied to the payroll system incorrectly, allowances or loadings haven’t been applied or rules are not updated as Awards change.
  8. Incorrectly calculating long service leave. Long service leave is complex and difficult to calculate, employees must be paid their ordinary pay based on their normal weekly number of hours of work.
  9. Not paying super on ordinary time earnings. Superannuation is payable on all ordinary time earnings which include some specific allowances and loadings. 
  10. Choosing the wrong level or grade for an employee under an Award. This can occur when an employee progresses up the levels of the Award, but their pay is not updated to reflect this.

ProcessWorx can help you understand your Award and ensure you pay your employees correctly. Call us to talk to an expert advisor about pay rates if you are concerned about underpaying your staff, on (08) 9316 9896. Visit our website for more information https://www.processworx.com.au/

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Written by Danielle McNamee

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Marisa Ross

HR Advisor

Marisa is an experienced and motivated HR professional with a strong HR generalist and business operations background with a focus on employee relations, performance management, leadership training & development, workers compensation & injury management, and employee retention. Marisa holds a Bachelor of Human Resource Management and a Bachelor of Behavioural Science with a minor in Counselling. Having worked in a variety of industries from SMEs to large blue-chip organisations, Marisa is passionate about enriching employee experience, employee retention, and building leadership capability in people management.

Aimee Grigson

Aimee Grigson

WHS Advisor

Aimee has a strong understanding of Workplace Health and Safety Legislation and standards and has extensive HSEQ experience in a number of industries. Aimee has a great ability to engage across all levels of organisation, including field teams, leadership and external stakeholders. Aimee ensures Health and Safety Management Systems are compliant to legislation, effectively implemented and understood by all. Aimee has a Certificate IV in Work Health and Safety and qualifications in auditing and incident investigations. Aimee is passionate about coaching and developing small businesses towards a positive safety culture.