A recent landmark decision by the Federal Circuit and Family Court of Australia has ruled that individuals, not just employers, can be named in small claims cases to recover unpaid wages and entitlements.
This means that for small claims up to $20,000, employees can now name the person who employed them in addition to the business. This provides workers with a better success rate of receiving unpaid wages as in the past, company directors have been able to avoid liability by deregistering companies or shifting company assets, making it difficult for employees to recover money owed to them.
These changes will encourage more workers who have been underpaid to take action against employers, and make it harder for employers to avoid accountability.
Why this court decision matters for all business owners?
Most Australian workers are employed under a modern award and as many HR bods will confirm, modern award interpretation is no easy undertaking. That being said, it is critical in understanding the obligations of employers to employees with business owners required by law to ensure workers are paid in a timely manner, wages are calculated correctly and in full accordance with any entitlements.
Penalties for underpaying employees can range from on-the-spot fines, legal action, unfavourable exposure in the media, as demonstrated by some of Australia’s most well-known brands in recent years, and significant fines for each infringement for companies.
Underpayment can occur in a variety of ways such as miscalculating penalty rates, failure to pay the correct overtime, technical errors with the electronic payroll system, and the underpayment of superannuation. In many cases it’s unintentional, but whether the employer meant to or not, the consequences for getting it wrong can cause significant financial and reputational damage not only for the business, but now also the individual business owner.
How do I avoid underpaying my employees?
Implementing robust processes to minimise the chances of underpaying employees is key. Employers should:
- Ensure payroll systems and processes are maintained and up to date at all times, especially when important changes occur such as the increase to superannuation guarantee at the beginning of the new financial year;
- Ensure employees have a clear understanding of payslips and all of the information on it;
- Ensure correct employee classification, including those set out in an enterprise agreement, to avoid common mistakes such as incorrectly classifying an employee as casual, at a lower-level classification or not following through with applicable wage increases; and
- Understand the minimum requirements to which they are required to adhere in terms of wage rates, overtime and penalty pay, and leave loading.
I think I’ve underpaid an employee – what do I do?
Mistakes happen, and it’s better to be proactive and transparent when any issues occur, not only to protect employees, but also the reputation of the business. In the event that it’s discovered that workers have been underpaid, employers should act immediately and take the following steps 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
It’s important for employers to communicate any issues of underpayment to all employees affected immediately and with complete transparency, and then rectify the situation as soon as possible. If employees feel deceived, it can quickly breed suspicion amongst workers leading to mistrust towards management; and it’s in these instances that employees are more likely to become disgruntled and seek out legal advice.
Ensuring workers are paid correctly should be the priority of any business owner, so if you’re looking for assistance interpreting complex modern awards, correctly classifying employees or need support dealing with underpayment issues, get in touch with our team via the chat box here or calling us on 08 6150 0043.
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