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How to avoid underpayment of staff

With regulators taking greater interest in total work hours and payment of overtime, it has never been more important to accurately manage time and attendance and avoid underpayment of staff.

Australian workplace laws have tightened to protect workers from underpayments. Underpayment means paying workers less than they are entitled to under the relevant award or agreement, or less than the National Minimum Wage. Not paying entitlements such as superannuation or penalty rates is also a form of underpayment.

Resources are in place to assist businesses to comply with changing regulations, but it can be hard to keep up. Not staying up-to-date puts you at risk of non-compliance and underpayment of staff.

Steps to fix underpayment of staff

Employees must be paid at least their minimum pay rates and entitlements. Not following the law can lead to serious penalties. Employees can commence court proceedings to recover underpaid wages up to six years from the date of the underpayment event.

The National Minimum Wage and award rates are reviewed by Australia’s Fair Work Commission every year. Any change usually starts from 1 July every year.

There’s no need to panic if you think you’ve underpaid an employee. Underpayments often happen because of a mistake or payroll error. Fixing it quickly and getting it right in future is important.

The Australian Government’s Fair Work Ombudsman recommends taking the following steps:

  1. Work out how long the employee was underpaid
  2. Work out how much the employee was paid and what they are entitled to be paid
  3. Calculate how much the employee has been underpaid
  4. Discuss with the employee and confirm back payment arrangements
  5. Keep up-to-date with future wage increases

What about overpayments?

While underpayments are primarily the concern of workers, overpayments are also a bad look for employers.

Overpayment of wages usually results from administrative or clerical errors, incorrect data in a payroll system or an award being incorrectly applied. Recovering incorrect payments or negotiating wage deductions to compensate you, are unlikely to win you any friends.

The Fair Work Act has strict guidelines to recover overpayments and there are only limited situations where it is allowed. Repayments can only be made with a written agreement from the employee.

Get payments right the first time

Most underpayment scandals or allegations of wage theft that you read about, relate to large workforces. Usually, a person or corporation has knowingly contravened workplace laws or displayed a pattern of undesirable conduct towards workers. However, underpayments are a reputational and financial risk for any-sized business.

The best way to stay on top of things is to maintain accurate records. Put a system in place that provides you real-time access to a daily dashboard of staff sign-ins and sign-outs, total hours completed and wages due for payment.

Using a simple timeclock app for staff to input start and finish times, adds transparency to your record-keeping. Digital timeclocks using a smartphone app or online tool provide a clear summary to the business owner for ongoing review and authorisation. The timeclock data can then directly feed timesheets to calculate payments.

underpayment of staff

Accurate time and attendance records are critical to managing labour costs in your business. Knowing where workflows are pushing staff over time or staff are unnecessarily staying back, helps you to better manage staff rostering.

A digital timeclock system that sends you alerts for when staff don’t turn up or shifts run over also allows you to stay on top of issues as they happen. You can also make sure that staff stick to scheduled work hours to make managing their entitlements easier.

Whether your staff are located at one-site, multiple-sites, remote or working from home, are a mobile workforce or operating across multiple venues, time and attendance tools are your safety net to avoid underpayment of staff.

Jayde Sinclair

Jayde Sinclair

Jayde is a 20-year small business expert with a background in retail, hospitality and commerce.