While we all do our best when calculating wages and entitlements for our employees, it’s complicated!
So what do you do when you receive an email from one of your employees who claims they’ve been paid less than they should have been?
Let’s take a look at what we as business owners need to understand so hopefully this question doesn’t get asked and, if it does, you have the processes in place that makes it easier to deal with.
How to minimise the risk of underpayment
- Understand the terms and conditions that apply to relevant industrial instrument and keep up to date with any changes – e.g. the modern award(s) or enterprise agreement that covers your workforce, the National Employment Standards for non-award employees, Fair Work Act, Long Service Leave Act.
- Ensure you have a method to record all time (including hours that incur penalty rates) worked by your employees – e.g. accurate timesheets (whether hard copy or online) and keep these records for at least seven years (the legal minimum requirement).
- Implement a policy where overtime must be authorised in writing by the manager before that overtime is worked (SMS or email is fine as long as the information can be saved for payroll information).
- Where your employee is paid a salary that is above the rate in the aware or enterprise agreement, ensure the employment agreement has an offset clause; also ensure the annual salary is analysed in February each year against what the employee would have been paid if paid strictly in accordance with the award (where there is a shortfall between annual salary and award calculations, the difference needs to be paid plus superannuation).
What do you do when there is a claim of an underpayment?
- Respond to any pay question as soon as an employee raises it.
- In the first instance, ascertain whether there has been an underpayment; if there has been, identify how much is involved.
- where there is a confirmed underpayment, both parties should reach an agreement on how that is to be paid – i.e. as a lump sum or instalments over time.
- Sometimes, calculating back pay requires a lot of time and effort; and remember that backpay may also require adjusting superannuation contributions and payroll tax.
What can employees do if they want to take the matter further?
If the matter can’t be resolved and/or the employee still considers they may be owed back pay, they may apply either to the Fair Work Ombudsman (FWO) or to the Fair Work Division of the Federal Circuit and Family Court of Australia (FCFCA).
Both bodies have the power to deal with underpayment claims by employees and ex-employees going back up to six years.
They can also investigate breaches with respect to:
- the National Employment Standards
- a modern award
- an enterprise agreement
- a workplace determination
- a national minimum wage order
- an equal remuneration order, or
- an unauthorised deduction.
Both FWO and the Small Claims Court prefer to promote their mediation services to settle matters wherever possible. Where that fails, they may resort to using their full powers to impose measures upon employers where appropriate.
Fair Work Ombudsman (FWO)
Once an employee submits an underpayment claim to the FWO the matter typically proceeds as follows:
- the FWO takes a statement from the employee and then submits that to their employer asking the employer to send a statement in response back to the FWO.
- there will then be a mediation session where the FWO will try to resolve the matter between the employee and the employer.
- once agreement is reached at mediation, the agreed actions must be completed within the time frame specified by the FWO.
The agreed actions are not complied with or the matter was unresolved at mediation, the FWO will decide what action, if any, to take next in accordance with their Compliance and Enforcement Policy – e.g.
- educating and advising both parties
- issuing an employer with a notice to produce documents and/or send inspectors to gather evidence and interview workers and management and even widen the scope of their investigation beyond the original complainant
- where contraventions are confirmed the FWO may accept an Enforceable Undertaking from an employer who agrees to remedy the matter in a specified time, or.
- if an undertaking is not made, or not honoured, the FWO may decide to issue a Compliance Notice to an employer specifying action they should take to promptly remedy the matter (for example back paying an employee a specified amount) or an Infringement Notice i.e. a fine, or litigate e.g. take the employer to the Federal Small Claims Court.
Note: Under the Fair Work Act (section 361) there is a reverse onus of proof on the employer, meaning the FWO may not actually require an employee to prove their claim, but can instead require the employer to disprove their employee’s claim.
Small Claims Court
The Federal Circuit and Family Court of Australia has a Fair Work Division offers a ‘one-stop shop’ for employees seeking to recover employment entitlements with a quick, informal process (lawyers rarely allowed) facilitated by the court’s experienced registrars and judges.
Note: On 1st July 2023 The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, Part24 – Enhancing the Small Claims Process will amend section 548 of the Fair Work Act to:
- increase the limit on underpayment claims with the Fair Work Division of the court from $20,000 to $100,000
- allow the awarding of interest payments on top of that claim limit
- order filing fees incurred by the employee to be paid by the employer, in cases where the court has found in favour of the employee.
These changes are expected to significantly increase the number of small claims made by employees.
Employees who have failed to resolve their claims in other ways can make a claim directly to the court themselves and be granted a ‘directions’ hearing or a mediation with a registrar of the court who is trained in dispute resolution. Usually, the matter is resolved at that stage, but if not, a final hearing is scheduled before a judge who will consider the evidence presented by both sides and any other matters the Judge deems appropriate, before deciding whether to make a legally binding court order
The Bottom Line
Getting employees’ pay and entitlements right can be both complicated and expensive so it’s important to keep on top of this. Respond to any employee questions on their wages as soon as practicable. The alternative if you don’t is that the employee can lodge a claim with either the FWO or the Small Claims Court costing you a lot more than the original (and usually unintended) underpayment.
Akyra’s Key Takeaways
- Understand the terms and conditions of the modern award(s) or enterprise agreement that covers your workforce or the National Employment for non-award employees.
- Respond as soon as practicable to employee questions about their wages; if it going to take time to collate and analyse the information, ensure you advise the employee of this.
NEED HELP MANAGING EMPLOYEE PAY QUERIES AND ENSURING YOU AREN’T PUTTING YOUR BUSINESS AT RISK BY UNDERPAYING YOUR STAFF?
At Akyra, we’re here to assist you in navigating through complex wage entitlements and employee pay concerns. From keeping you updated with relevant industrial laws to setting up compliant payment processes, we can help. Stay on top of pay scales and alleviate employee concerns by reaching Akyra at 07 3204 8830. Alternatively, you can schedule a free 30-minute consultation for personalised advice. Let Akyra solve your payment concerns, and ensure they never happen again.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.