Published August 2023
Employer Guide – How to Pay Employees Correctly
In August 2023, the Fair Work Ombudsman reported that it had recovered $509 million in unpaid wages and entitlements for more than 250,000 workers in 2022-23. This is the second largest annual figure ever recovered in the Ombudsman’s history and incredibly, over 50% of the errors came from universities and large corporate organisations. Major litigation has also commenced against a number of entities.
It reiterates the importance employers should be placing on ongoing wage compliance. There is much room for error no matter your business size or industry so the time to act is now and regular compliance activities should continue into the future as the wage compliance landscape continues to change.
This Quick Pay Guide is designed to help employers pay their employees correctly – this is one of the most complicated parts of running a business and comes with heavy penalties if not done properly.
If you are certain that an enterprise agreement or other registered agreement applies to your employees, you can adopt a similar process to what is described in this – Simply exclude step 1.
- FIND THE RIGHT AWARD
The first step in finding out if your employees are being paid correctly is by confirming which Modern Award applies to them. Finding the right Award can be tricky, however, there are a few different resources available that can assist you.
There are 2 types of Modern Awards – some that provide industry coverage (that is, the industry the employer operates in), and some that provide occupational coverage (that is, a specific type of role regardless of industry). In determining which award applies, we generally investigate Awards in this order. There is also a third group that provides both industry and occupational coverage such as the Manufacturing & Associated Industries & Occupations Award – yes, it’s confusing!
It is important to remember that depending on the type of occupation an employee performs and the industry your business operates in, your employees may not all be covered by the same Award.
For example, if you run a local transport business that employs a mix of drivers and administration employees, then two Awards would likely apply in your business. Your drivers would likely be covered by the Road Transport and Distribution Award 2020 and your administration team would be covered under the Clerks – Private Sector Awards 2020.
Below are a few different resources that can help you determine which Award/s apply to your employees:
- Fair Work Commission List
If you have an idea of which Award may apply to your business, then going to the Fair Work Commission website may be a good starting point. Here you will find a list of all the Modern Awards listed in alphabetical order. This website is very easy to navigate with finding Awards and reading the Awards themselves.
Click here to go to the Fair Work Commission Modern Award list.
- Coverage & Classifications
Once you have found the Award/s you think may apply, you should do a further check – there are two key sections in each Award which will help you confirm whether you have selected the right Award:
- Coverage – this section outlines which industries and operations the Award covers, and also what it does not cover; and
- Classification Structure & Definitions (usually found in Schedule A of the Award but can hide in other places throughout the menu) – this section will break up each classification by detailing indicative skills, experience and the type of duties for each level or ‘classification’. Sometimes position titles are also listed here.
- Fair Work Ombudsman Tool
If you are unsure of which Award applies, then the Fair Work Ombudsman Tool is another great resource.
This tool asks a series of guided questions. It checks firstly whether a registered agreement covers the employee/s. If it does, then no Award will apply to the employees covered by that agreement.
However, if you don’t have a registered agreement, or not all of your employees are covered by an agreement, then you will continue to other questions about job titles and the industry that best describes your business. Based on the information you provide, the Fair Work Ombudsman Tool will (hopefully) then find which Award would best apply to your employees.
Click here to use the Fair Work Ombudsman Tool.
- FIND THE RIGHT CLASSIFICATION
It is imperative that employers ensure each employee is correctly classified for the role they perform, and that they are being paid at least the minimum pay rate for that classification (AKA level).
Every Award contains a classification/levels/definitions section, which we recommend employers read thoroughly, to help them determine which classification applies to each employee.
It’s important to note that often, employees covered by the same Award might sit at different classification levels, depending on the tasks they perform, level of responsibility, years of experience, and qualifications, just to name a few factors.
The Award will break down each classification by describing indicative skills and qualifications that employees should hold and the duties they might be responsible for.
Once you know which classification applies, you will then be able to move to step 3, to confirm the minimum pay rate.
- FIND THE MINIMUM AWARD RATE OF PAY
There are a few different resources that can help you find out what the minimum Award pay rate will be:
- The Award
Every Award will list the minimum rates of pay for each classification. You can find this by going to the Award and finding the ‘Wages’ section. It may be called something like ‘Wages and Allowances’ or ‘Minimum Rates’.
It is important to keep in mind that the pay rate listed in the Award will just be the minimum pay rate and will most likely not include any type of all-purpose allowance, industry allowances, travel allowances and casual loading, if these types of entitlements are applicable to the employee.
- Pay Guide
Every Award will have a separate Pay Guide that provides all the pay rates applicable to every type of employee covered by that Award. This includes permanent employees, casuals, juniors, and what to pay when employees work overtime, weekends, public holidays etc.
The Award Pay Guides will also list any type of industry, occupation or expense related allowances that may apply and whether they are included in the pay rates or paid separately.
To find the Pay Guide for your Award click here. You can read our Employer Quick Guide to Understanding Pay Guides here.
It’s important to remember that the Pay Guide should be read in conjunction with the Award, and not in isolation when determining entitlements. Entitlements such as RDO’s, break times and progression through pay points will generally not be noted in the Pay Guide, but it’s imperative the employer understands them, if they apply.
- P.A.C.T – The Pay and Conditions Tool
Another way to find out the minimum pay rate is by using the P.A.C.T – Pay and Conditions Tool – which is found on the Fair Work Ombudsman website. You can find the P.A.C.T here.
By using the P.A.C.T you will be able to find the minimum pay rate, along with common overtime and penalty rates, and any allowances you select. You also have the option to check pay rates for junior employees, trainees and apprentices, as well as the rates and allowances that applied in previous years.
To use the P.A.C.T you will need to know which Award and classification applies.
- WHAT ELSE DO I NEED TO CONSIDER?
This section covers the other entitlements that are often overlooked and result in underpayments.
While it’s imperative employees receive at least the minimum pay rate for their classification, it is likely there are other entitlements they will have, that also need to be paid when they apply.
We strongly recommend all employers thoroughly read and understand the Award/s that apply to their team and periodically audit their payroll practices to ensure compliance with each relevant Award.
Every Award contains different allowances, usually related to occupation, industry or expenses, under a heading such as ‘Allowances’ or ‘Wages and Allowances’. This section will list which allowances apply, including a description of the amount payable and in which circumstances. Allowances are also listed in the Pay Guide for each Award but often the descriptions are not included.
Examples of allowances that are often overlooked that you may need to consider include various travel allowances, laundry/special clothing allowances or reimbursements, meal allowance for working overtime, on call allowance, starting work on a construction site, first aid allowance (if they are a nominated first aid officer) etc.
- Overtime Rates
Depending on when overtime is worked and how many additional hours are worked, this can vary (increase) the pay rate that should be paid to the employee. Most heavy industry Awards require overtime to be calculated on a daily basis, rather than weekly, but you should always check and ensure your timesheets and payroll system are accounting for this correctly.
You can generally read more about any overtime rates that apply to an Award by checking the ‘Hours of Work’ or ‘Overtime’ sections. Alternatively, the Pay Guide or P.A.C.T. will confirm whether any increased rates apply.
- Penalty Rates
Penalty rates generally apply on Saturdays, Sundays and public holidays, and are another factor that is often overlooked. Each Award will outline what penalty rate applies (if any) and will usually vary depending on the day the employee worked.
An example of where a penalty rate should usually be paid is if a full-time employee who works 38 hours per week and is rostered to work Tuesday – Saturday each week. Although they work a regular 38-hour week, it is important to ensure that the employee is being paid the penalty rate applicable for Saturday, if the Award requires it, and not just the ordinary (weekday) rate on the Saturday.
You can read more about penalty rates in the Award, generally in the ‘Overtime and Penalty Rates’ section, if they apply. Alternatively, the Pay Guide or P.A.C.T. will confirm whether any increased rates apply.
- Working Outside the Span of Ordinary Hours
Employers should be aware of the ordinary span of hours apply to each Award applicable to their business as this helps to determine when employees should be starting and finishing work, how they should be rostered, and if any overtime or penalty rates apply if they are working outside the span of ordinary hours.
This information can generally be found in the Award under the ‘Ordinary Hours of Work’ and ‘Roster Arrangements’ sections, if it applies.
- Annual Leave Loading
Most Awards contain a provision for annual leave loading to be paid to an employee when they are on paid leave (often an additional 17.5% on the leave taken). Take a look under the ‘Annual Leave’ or ‘Leave’ sections to confirm what applies.
- Casual Loading
Casual employees are paid casual loading of 25% in additional to the ordinary hourly rate for their classification to compensate for some of the entitlements of permanent employment, which they do not receive (eg. Annual leave, personal leave, notice on termination, redundancy pay etc). Some Awards pay casual loading on the ordinary rate of pay, while in others it is cumulative, meaning it is added to the ordinary hourly rate then overtime and penalty rates etc are payable on this higher amount.
Generally, Awards contain a clause for ‘Casual Employment’ but we have also seen this one hiding under ‘Employment Types’ and ‘Minimum Wages’. Always check the Award and consult with the Pay Guide or seek advice if you are unsure.
- Travel Time & Travel Entitlements
All Awards treat travel time and related compensation differently but it is often overlooked. If you team travels for work, even just to a different site now and again, check what applies. This is generally found under ‘Allowances’.
- Annualised salaries
While it is generally acceptable to pay an employee an annual salary, you should ensure it is in calculated, documented and audited line with the Award provisions.
For example, the Clerks – Private Sector Award 2020 is very detailed around what is required by the employer. Work hours are to be assessed every pay period to ensure that the hours worked are covered by the employees salary. If the employee works more hours in a pay period (at the employers direction) than is covered by the salary, then those extra hours should be treated as overtime. The Clerk’s Award also contains several other detailed requirements, including how the salary is to be documented for the employee (in an employment contract).
The annualised wage provisions vary greatly between Awards so it is recommended that employers thoroughly read the applicable section of the Award and ensure they comply with it.
It should also be noted that not all Awards contain provisions regarding the paying of an ‘annual salary’ or ‘annualised wage’. When it is not obvious that a particular clause will apply, always check the clause regarding ‘flexibility’ or ‘individual flexibility arrangements’ – it will usually be hiding there and will need to be documented in an IFA (see below for more info).
- Flat Rates & Individual Flexibility Arrangements (IFA)
Whilst flat rates and IFA’s and are a good option for some roles and industries, employers must ensure that employees are better off overall when compared to the minimum rates and allowances of the Award, taking into consideration any applicable overtime, penalty rates, shift loadings etc (ie. if they were paid specifically as per the Award entitlements).
You should do your due diligence calculations regularly and document the arrangement in accordance with the Award section relating to ‘flexibility’ or ‘individual flexibility arrangements’ – ensuring the IFA does not form part of the employees conditions of employment.
For more information about IFA’s and paying flat rates, check our our Quick Guide to Flat Rates.
- Annual Increases – Every July
It’s important to remember that every year, usually in July, award rates and some allowances increase. You can read about the latest increases last month in our July Employer Update here.
- HOW TO MINIMISE ERRORS
Errors result in both underpayments and overpayments and, unfortunately, both can be costly for business. Errors are often caused by:
- Human / data entry error;
- Incorrect system setup;
- Inexperienced individuals attempting to interpret Awards and/or run payroll;
- Misinterpreting Award provisions;
- Multiple Awards applying to one employer;
- Inadequate pre-processing approvals;
- Payroll program incapable of handling different payroll items;
- Inadequate auditing.
While paying employees correctly can be a complicated and daunting task, the good news is that there is help out there. The team at Edwards HR advises every week on award coverage, minimum entitlements, calculating salaries and flat rates, and various award provisions. We also complete many projects relating to auditing, payroll system setups and testing, and remuneration benchmarking.
If you would like to chat with our team about wage compliance, auditing and commercial protection initiatives that are both cost effective and tailored specifically to your business, please contact our team.
For more guidance about this update, or to find out how Edwards HR can support your business, contact our team today on 07 3568 0866.
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