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Underpayment of Wages

Underpayment of wages is a serious issue. Employers who fail to pay minimum wages, allowances or penalty rates prescribed by the applicable instrument may be sued or even prosecuted to recover the underpaid amounts. Recent news coverage suggests that the underpayment of wages is endemic in certain business sectors, including the Sydney restaurant scene. Apprentices and trainees are also particularly vulnerable to being underpaid at work.

In truth, however, the problem may also arise in more innocent circumstances. In any case, it is of utmost importance for both employer and employee to identify and remedy any underpayment of wages as quickly as possible in order to avoid the human harm that comes from underpayment and penalties that may far exceed the amount of the shortage.


Underpayment of Wages: Legal Basics

The Fair Work Act 2009 outlines what award or agreement covers an employee through the national industrial relations system. The minimum wage guidelines consider the industry, tools needed for the job, hazards posed and extra pay rates for casual workers.

New employers should be especially careful to check with Fair Work Australia to determine the correct minimum wage to be paid to each category of employee. Fair Work Australia offers considerable resources to small employers in calculating payroll, leave entitlements and other matters. Individual negotiations with employees that produce a lower rate, even if acceptable to the employee, are not permitted.

Employees who believe they are being underpaid should similarly seek assistance from Fair Work Australia, first to determine what the correct rate should be and thereafter to explore corrective action.

In the event of underpayment of wages, a number of remedies are available, ranging from voluntary payment to mediation, official letters of caution, court orders and fines that may be quite substantial, especially where the underpayment of wages appears to have been deliberate and systematic. In a recent decision, a hairdressing chain was fined $70,000 for an underpayment of wages in an amount that was only about one-tenth of the fine.


Employers: How to avoid claims for underpayment of wages?

Underpayment of WagesThe best defence is to know at the start what your obligations are, to build this into your labour cost and recover that amount via the fee you charge for your services.

It is important that employers have a good understanding of the terms and conditions of each of the awards that apply to their business. Underpayments and breaches of awards often occur because employers are not aware of every entitlement contained in the award. Some awards contain complex or unusual clauses that are not obvious. These may include industry specific redundancy schemes or notice periods that are different from those of the Fair Work Act.

As a second step, employers should record and implement salary arrangements properly to prevent disputes about which award entitlements, if any, are intended to be included in the salary.

Finally, employers should keep good time and wage records to ensure that the employee continues to be paid enough to avoid underpayment. Good records may also satisfy any parties that may become involved in a dispute, including the Fair Work Ombudsman, court or tribunal that any errors were made in good faith.


Employees: Can you claim for underpayment of wages?

If you believe that you have been underpaid at work, you should verify with Fair Work Australia what award or agreement covers your job under the Fair Work Act. If you have been underpaid at work, your first recourse is to check with your employer to determine whether a genuine mistake was made. Many issues can be resolved simply.

If your employer becomes obdurate or has purposely underpaid wages, you should make a written request of him or her to fix the situation. At this point, it may be wise to consult with counsel or your union representative, as well.

When these avenues have been exhausted, make a complaint to the Fair Work Ombudsman. The Ombudsman may recommend Assisted Voluntary Resolution, which is a process undertaken to assist the employer and employee to find a mutually acceptable resolution, before commencing a full investigation. It is a relatively quick process often complete within 40 working days of the lodgement of the complaint.

Thereafter, Fair Work Australia may initiate a full investigation for all unresolved issues and litigation is an option.


Case Studies

Underpayment of WagesThe size of the awards made in cases of underpayment of wages demonstrates how seriously Fair Work Australia and the court system take the issue.

A pizza and pasta franchise operator was recently penalised $335,000 for underpaying more than 100 of its employees over a period of three years and failing to keep accurate wage records. The Court described the employer’s practice of offering some employees free and discounted pizzas and soft drinks instead of their full wages as belonging ‘in the dark ages’.

In another decision, an employer was found to have violated wage payment laws by paying each of its award-covered employees a flat rate that was a few dollars above the minimum hourly award rate, but without any shift allowances, overtime or penalty rates. The maths shortcut was ill-advised and backfired.


Get the Help From Us

The lawyers at Owen Hodge Lawyers can assist employers who want to avoid or defend from claims for underpayment of wages. We can also help employees who believe that they have been underpaid at work.

Each situation is unique, of course, but our experienced employment law attorneys encourage you to contact the firm at 1800 770 780 to schedule a free consultation. We look forward to working with you both to prevent the occurrence of wage underpayment and to resolve it is expeditiously as possible where it has occurred.