Employers warned on inadvertent wage underpayment

28 August 2024

Legal firm Cornwalls is urging employers to prepare for important changes to the Fair Work Act 2009 relating to wage underpayment.

Extract from the article 'Inadvertent wage underpayment – the employer nightmare' available at cornwalls.com.au.

In just over 4 months (on 1 January 2025) the Fair Work Act 2009 amendments creating an underpayment of wages criminal offence comes into effect. There is not much time for employers to take any necessary steps needed to minimise the risk of wage underpayment, including inadvertent underpayment.

Doing nothing to manage the risk of inadvertent underpayment is far riskier. Doing nothing could, in certain circumstances, be deemed to be a deliberate underpayment and therefore, a criminal offence.

Employers' risks

The first step in managing this risk is to consider the common issues that can result in inadvertent underpayments. These risks include:

Applying the wrong enterprise agreement or modern award
Misclassifying your employees
Misapplying allowances, overtime, penalty rates, and other ad hoc payments
Misunderstanding minimum engagement periods
Misunderstanding annualised salaries

What employers need to do

We recommend that between now and 1 January 2025, employers review their payroll systems and payroll rules to satisfy themselves that employees are being paid correctly under and applicable industrial instrument.

Employers need to check:

that they are applying the correct award or enterprise agreement;
that employees are classified correctly (for example, are employees who are being paid as a level 1 or level 2 classification more properly a level 3 or a level 4 classification);
whether all applicable allowances or penalty rates are being applied and paid correctly; including, whether employees are taking their required meal breaks at the correct time; and
that accrued entitlements such as annual leave or sick leave are being accrued correctly.

There can be substantial benefit in employers undertaking any review in a way that gives them the benefit of Legal Professional Privilege. If there is a likelihood of underpayment, then documents produced in any payroll review may have to be disclosed, including to the authorities like the Fair Work Commission, if an underpayment claim is commenced. Undertaking a payroll review under Legal Professional Privilege means that until the employer understands what legal risk exist of an underpayment claim or prosecution, the employer can develop and implement a management plan without risking the review documents being disclosed in any court action or regulator investigation.

Read the full article for more information on these risks and what employers need to do before 1 January 2025.

Authors:

Robert King, Partner, Brisbane

Alexandra Lovell, Law Graduate, Brisbane

Employers warned on inadvertent wage underpayment

28 August 2024

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