What happens when there is an underpayment of wages?

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The underpayment of wages is a serious issue. Employers who fail to pay minimum wages, allowances or penalty rates may be sued or even prosecuted to recover the underpaid amounts. In recent years, we’ve seen the likes of Woolworths, George Calombaris and Zara all in the news for the underpayment of wages.

In some industries, such as hospitality, the underpayment of wages is endemic. 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 the utmost importance for both employers and employees to seek good employment legal advice from an employment lawyer. Identifying and remedying any underpayment of wages as quickly as possible is essential to avoiding the harm that comes from underpayment and the penalties for wage theft.

underpayment of wages


The Fair Work Act

The Fair Work Act 2009 outlines what is covered by an award through the Australian industrial relations system. The national 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 also offers considerable resources to small and medium businesses 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.

What causes underpayment of employees?

  • A mistake or payroll error.
  • Not paying allowances or the appropriate penalty rates for the day of the week/time of day.
  • Incorrect base rates or classifications in the employment contracts.
  • Lack of understanding of what constitutes fair pay for an employee’s position (including if the job title doesn’t accurately represent the worker’s actual job).
  • Deliberately underpaying employees due to discrimination (including age, race, disability or gender discrimination).
  • Failure to accurately record hours of work.
  • Personal/carer’s leave accruing incorrectly.

Consequences of underpaying employees

The fines 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.

How do I claim underpayment of wages?

Employees who believe they are being underpaid should seek assistance from Fair Work Australia — first to determine what the correct rate of pay should be and then to explore corrective action. You can also speak to an employment lawyer at Owen Hodge for advice about your entitlements.

In the event of an underpayment of wages, a number of remedies are available. These range from voluntary payment to mediation, official letters of caution, magistrates court orders and fines.

Can I sue my employer for underpaying me?

Yes, you can. Employers who fail to properly pay their employees may be sued or prosecuted to recover the underpayment of wages.

Employers: How to avoid claims for underpayment of wages?

As an employer, there are a number of ways you can avoid underpayment of wages. These include:

1. Being aware of your industry awards

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 modern award. Some awards contain complex or unusual clauses that are not obvious. These may include:

  • Industry specific redundancy schemes
  • Long service leave
  • Any notice periods that are different from those of the Fair Work Act

2. Implement salary arrangements

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.

3. Accurately record hours & wages

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 (including the Fair Work Ombudsman, court or tribunal) that any errors were made in good faith.

Employees: What can I do if my employer underpaid me?

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. Then, you should check with your employer to determine whether a genuine mistake was made (many issues can be resolved simply).

If I’ve been intentionally underpaid at work, what are my rights?

If your employer becomes obstinate 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 an employment lawyer 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 completed 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 also an option.

Underpayment of wages case studies

The 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 workplace rights 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 with underpayment issues.

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.

At Owen Hodge Lawyers, we always strive to provide you with the best legal advice and guidance – no matter your issue. We specialise in a range of law matters, and have a blog that offers in-depth and comprehensive articles. Learn about genuine redundancy and much more on the Owen Hodge blog today.

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