Recently, Tanda released a Webinar discussing the five most common reasons businesses disclose underpayments to the Fair Work Ombudsman.

Tanda is also releasing an article on each of the five issues, to assist the community in developing a broader understanding of the Ombudsman’s priorities.

This third piece in the series will focus on underpayment caused by annual salaries.

How Fair Work Targets Businesses

The Fair Work Ombudsman is focussed on stopping the underpayment of wages in the Australian economy. 

While the most common examples of underpayment that the Ombudsman uncovers are of employees paid by the hour, in recent years, there has been a surge in employers self-disclosing underpayment of salaried employees. The Ombudsman has recovered more than $140 million from business Australia-wide in the last financial year alone, many from situations where salaried employees have been underpaid. For more information on how Fair Work targets business, click here.

Failing to have proper time recording processes in place could expose your business to underpayment claims.

Underpayment Caused by Annual Salaries

The underpayment caused by annual salaries has quickly become one of the most prominent issues in Australian workplaces. If a worker is covered by an award, their salary must not be lower than their award entitlements.

Calculating the award entitlements for a salaried employee is as complicated for a salaried employee as it is for any employee paid by the hour. It isn’t as simple as multiplying the employee’s base award rate into a yearly amount. The actual calculation will depend on a number of factors, including allowances, overtime, penalties and loadings, and how many hours the employee works.

Hours worked is particularly important. Most businesses don’t keep hours worked for their salaried employees. The common view is that salaried employees are expected to work ‘reasonable overtime’ where necessary. However, the more hours an employee works, the more their award entitlements will be – and if their overall salary is below this amount, it’s illegal.

This is a trap that many employers, including some of Australia’s most prominent companies, have fallen into over the past couple of years. These issues have cost many companies millions of dollars in back payments to workers. 

Staying Compliant

Fair Work also says that underpayments caused by annual salaries result from having “no, or poor, mechanisms for checking payroll compliance or completing annual reconciliation requirements”.

Following this wording reveals the solution to the problem – the easiest way to avoid underpayment issues caused by annual salaries is to have mechanisms in place to check payroll compliance and reconcile salaries. Technology is making this task easier.