How to Avoid Wage Theft and Underpayment Risks
The rise of wage theft scandals in the news is rising every year. Whether companies are deliberately underpaying their staff or if it’s an innocent mistake is hard to say. Most of the time, as an employer you won’t get much sympathy from employees or organisations such as the ATO, for making these types of errors. The bottom line is that it’s negligent and can have serious consequences.
It’s more important than ever for businesses, both small and large, to ensure they understand the proper award and super payments to make and that their employees are being paid correctly.
Let’s start with the penalties for wage theft. Whether it's a mistake of human error or not, the consequences can cause both reputation and financial damage to your business.
Penalties for wage theft
On the spot fines
Legal action
Unfavourable exposure in the media
Significant fines per contravention for companies
Once you understand the consequences, this leads us to what you can do to avoid wage theft and easy mistakes leading to underpaying your employees:
1. Consider a single-touch payroll system
Switching to a system like Xero or MYOB that can manage your employees’ wages for you will not only save you time, but also reduce the opportunity for human error. Sometimes, human error is inevitable with even the best systems, but this can significantly reduce simple mistakes being made.
2. Ensure correct employee classification
Incorrectly classifying employees can lead to issues with underpayment of employees. It’s important to understand employee classifications set out in enterprise agreements to avoid some of these common errors:
designating a part-time employee as a casual
designating an employee at a lower level classification than they should be under their modern award or enterprise agreement.
oversights following through with wage increases for casual junior employees’ on their birthdays
3. Understand the minimum requirements
If you have established that some or all of your employees are covered by a modern award, you are required to adhere to its terms, including payment of entitlements such as minimum wage rates, overtime and penalty pay, and leave loading. Failure to adhere to the terms of the applicable modern award can result in an investigation by the ATO or Fair Work Ombudsman depending on the area the issue applies to, resulting in serious consequences.
4. Be proactive if a mistake occurs
It’s better to be proactive and protect your employees and business’ your reputation. However, if you discover that your staff are being underpaid, the following steps should be taken to rectify the issue:
Determine the duration of the underpayment
Determine the amount actually paid
Determine what the entitlement was
Calculate the difference
Make a back-payment
Identify the root cause of the error, and implement systems to prevent another occurrence
Seek legal advice to determine how you can avoid any future underpayment issues.
At Optimum Legal, we can help you to conduct an audit of the employment documentation for your employees, provide training, and help you to understand and properly classify employees under the correct modern awards or classifications.
For further guidance or legal advice, contact our team at Optimum Legal on 07 3228 8400 or info@optimumlegal.com.au