Employee underpayment, whether a failure to pay penalty rates or unauthorised wage deductions, is a breach of the Fair Work Act and consequently can result in hefty employer penalties.

Employers are responsible for paying staff members the minimum monetary amounts, including allowances, prescribed under an award or agreement. When an employer fails to do so, the employee can claim for underpayment of wages within six years of the money becoming due.

Underpayment can result in various ways; here are three common risk areas for employers:

Incorrect Classification

Generally, classifications are based on the nature of the role and the employee’s qualifications and experience.

Employers must first ensure they use the relevant award or agreement for the employee and then match the classification to the corresponding hourly pay rate.

Failure To Pay Entitlements

Incorrect payment of entitlements, such as penalty rates, overtime, leave and allowances, is considered underpayment. Any allowances, loadings or penalties set out in an award or agreement must be applied to employees.

Special care must be taken when applying for annual leave; employers must check the pay rate and if an annual leave loading applies as per the annual leave clause in the award or agreement. Employers must also ensure they remain up-to-date with any changes to modern awards, such as annual award increases and increases in rates of pay.

Unauthorised Deductions From Wages

An employer must only make reasonable deductions from wages, such as a salary-sacrificing agreement. A deduction must be authorised in writing and work following a modern award or agreement. Any deductions that directly or indirectly benefit the employer are considered unauthorised deductions. Employers risk breaching the Fair Work Act if they deduct costs such as tools and equipment, uniform and breakages from an employee’s wages.