Underpaying your employees may cost you more than you think

Underpaying your employees, knowingly or not, could cost your business more than you think. In addition to back paying your employees, you may be ordered to pay a penalty.

A small coach company (Ava Travel) was recently penalised a total of $163,300 for unintentionally underpaying two of its employees despite a judge finding the breaches were a result of “clumsiness and inadvertence” rather than deliberate. This was in addition to back payments of almost $44,000 which the company voluntarily repaid. The Judge also ordered Ava Travel to conduct a further audit at its own expense and provide the result to the Fair Work Ombudsman, including the identification of any breaches and its plans to rectify them.

Ava Travel paid two of its employees a flat rate that did not take into account all of their entitlements under the relevant award.

Melbourne business operator of Grandcity (GW) Travel & Tour was also fined more than $228,000 after admitting she underpaid a vulnerable migrant employee. The employee was paid flat hourly rates of between $9 and $11 to work as a casual travel consultant, less than half of her total entitlements under the General Retail Industry Award.

Employers need to be careful when paying their employees a flat wage or salary to compensate them for award entitlements (i.e. overtime rates, penalty rates, allowances and loadings). It is not enough to simply state in an employment agreement that an employee’s salary is in excess of all award entitlements and that the employee’s remuneration is in satisfaction of, and can be used to set-off, all entitlements under any award or other instruments. This must actually be the case and employers need to be able to demonstrate how the employee is better off overall.

If you decide to pay your employees a flat rate, you need to consider a number of factors including the national minimum wage, the applicable modern awards and any registered agreements. Flat rates must be agreed with your employees (i.e. in an Individual Flexibility Agreement and/or an employment agreement). You may also be required to seek the approval of the Fair Work Commission to ensure that you pass the better off overall test (i.e. to have an Enterprise Bargaining Agreement approved). This test requires that each of the employees covered by the agreement are better off overall than under the relevant modern award.

Recent Fair Work cases of employers incorrectly paying flat hourly rates to employees, like Ava Travel and Grandcity (GW) Travel & Tour, illustrate just how important it is to ensure that you are following all legislation requirements regarding pay. If you need any assistance in putting together the appropriate agreements in place to document your arrangements with your employees or would like an audit of your current documentation, please do not hesitate to contact Rankin’s Workplace Relations team.

Rachel Derrico, Senior Associate

2019-01-08T22:39:00+00:00January 8th, 2019|Business Advice, Compliance, Contracts, employees, Employment Law|Comments Off on Underpaying your employees may cost you more than you think