Staff Underpayments – Practical Steps for Small Business to Avoid Wage Error

With extensive media coverage over the last couple of months around staff underpayments and some of Australia’s largest companies declaring their errors – we at DFK Everalls have had several small businesses come to us, seeking advice.

Many are concerned an inadvertent error could lead to an unravelling of their business – and reputation. 

A vast majority of businesses out there want to do the right thing – for their business and their employees. They want to avoid errors – and they want to ensure they have the right systems to do this. 

We thought we would share this piece from the Canberra Business Chamber, that shares some insights into wage error – and some practical steps businesses can take to ensure they are getting it right. 


Wage error V wage theft – there is a difference

Canberra Business Chamber believes that the language used to describe staff underpayments is often too strong and inflammatory.

Criminal Codes across Australia define theft as “dishonestly appropriating property belonging to another with the intention of permanently depriving the other of their property.”

The vast majority of underpayments to employees are errors that arise from genuine misunderstandings. They are generally caused by a complex and confusing industrial relations system. This is compounded by the complexity of commonly used payroll management systems.

Inadvertent errors multiplied across a few employees and/or an extended period of time can add up to big, headline grabbing numbers, but none-the-less, are still an inadvertent error, not theft.

One aspect not mentioned in media coverage is that SMEs frequently identify wage errors that have resulted in overpayments to employees. The recovery of overpayments by employers is very difficult. In the absence of voluntary co-operation from the employee, such overpayments can only be recovered through expensive legal action.


Complexity is a challenge for small business

The awards categorisations and wage systems are extremely complex. The payroll software systems are also complex, and highly sensitive to changes and software updates.

Each modern award is set out differently to the next, and the language used varies significantly.

Approximately 97% of businesses in ACT are small businesses of fewer than 20 employees. Having a dedicated HR professional is neither practical nor financially viable. External bookkeepers and payroll process bureaus are often not informed of changes to an employee’s duties or status, leading to errors. They can only pay based on what they are advised, as they simply are not close enough to see any changes.

We know from recent cases of staff underpayments, even large companies with significant HR resources can make inadvertent errors. This indicates that ‘getting it right’ is extremely complex.


Practical steps for small business

The Chamber has compiled this list of tips for businesses to ensure they keep on top of their obligations to staff

  1. Ensure that employees can read their payslip and properly understand the information provided
  2. Know which award/s apply to your staff
  3. Keep track of the classification each employee falls under in their award. If employees take on extra responsibilities, ensure that they still fall within their current classification, and if not, increase their wages in line with their new classification.
  4. Keep track of work anniversaries if their award contains provisions indicating employees graduate to a new level or paypoint after a certain period of employment.
  5. Ensure you know when overtime applies to their work:
    a. Awards contain a span of hours in which employees can have ‘ordinary hours’ scheduled. If your award states ordinary hours may be worked between 8am and 6pm, Monday – Friday, any hours outside this span will attract overtime penalties.
    b. Awards contain maximum ordinary hours that can be worked each day. Exceeding this maximum will attract overtime penalties.
    c. Hours exceeding contracted hours will generally attract overtime penalties. If you require an employee to work additional hours, this should be agreed to in writing.
    d. Hours exceeding 38 hours per week will attract overtime penalties.
    e. In many awards, working through required breaks will attract overtime penalties.
    f. In many awards, if employees are required to return to work with less than 8 or 10 hours break, overtime penalties will apply.
  6. Each award is different as to the penalty rates payable. Generally, overtime is initially paid at x1.5 for the first 2-3 hours, before increasing to x2.
  7. Keep track of employees’ start and finish times and when they take their breaks.
  8. Award wages increase each July, in line with a Fair Work Commission decision handed down annually in June.
  9. Ensure you are aware of any award mandated allowances your staff are entitled to.
  10. Have regular conversations with your bookkeeper to ensure they are aware of any recent changes to your employees’ situations.
  11. If in doubt, contact the Chamber.

Ultimately, it is imperative that you are familiar with your award/s so that you can identify when errors may have been made in wages.


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