How to avoid an underpayment fiasco

In recent months, there has been substantial media coverage of widespread underpayments to employees, including in the retail sector. Often, the cause of these issues is a misunderstanding and/or misapplication of modern awards.  

Understanding modern awards is crucial to complying with the Fair Work Act, as these instruments provide employees with key employment conditions, including minimum wages, penalty rates and even prescriptive rostering methods. However, the continuing complexity of modern awards can make compliance for Australian retailers challenging. 

These tips are directed at untangling the complexity and making compliance achievable.

Work out which modern award/s may apply

Modern awards come in two types: industrial awards and occupational awards. That is, they might apply to businesses in a particular industry (such as the General Retail Industry Award, 2010) or to employees in a particular occupation, regardless of industry (such as the Clerks – Private Sector Award, 2010). 

Each industry award generally contains a definition and a description of coverage to assist in determining whether the business is likely to be covered.

Importantly, in most cases, industry awards will take precedence over occupational awards to the extent of overlap. For example, the Retail Award contains an administrative stream for employees performing clerical functions at the retail establishment, and therefore the Clerks Award is more likely to apply to clerical employees working away from the retail establishment.

Determine what classifications apply

Once you are satisfied that your business is covered, review the classifications in each award. These are usually contained in a schedule to the award, with indicative descriptions of the tasks and responsibilities employees would do to qualify for each classification level. 

It is possible that an industry award does not have classifications for an employee in your business. Where this is the case, there may be an occupational award that applies to that employee. If not, they might not be covered by an award at all (particularly if the employee is in a very senior role).

Understand the minimum requirements – these are not optional

Once you have established that the business and some or all of the employees are award-covered, the business is required to adhere to its terms, including payment of entitlements such as minimum wage rates, overtime and penalty rates, and annual leave loading. If the company fails to adhere to the award, it is at risk of an investigation by the Fair Work Ombudsman, which could result in orders for back-pay and potential civil penalties.

While there are various mechanisms to vary the terms of the modern award (for example, individual flexibility arrangements (IFAs) and enterprise agreements) – these must result in the employee being better off overall. 

Consider applicable terms and conditions under the modern award

Businesses need to understand the applicable modern award(s) as they relate to employees, including with regard to minimum wages assigned to each classification, penalty rates for weekend work, overtime rates and allowances.

Additionally, many modern awards also provide lower rates of pay for junior employees, which means that employees doing the same work may have different minimum entitlements, depending on their ages.  

It is worth taking the time to properly understand these entitlements and how they apply to your business and seek advice if required. While this may seem arduous initially, it will save a lot of time and many headaches in the future. 

Ensure employment documentation is compliant

Your employment documentation should be consistent with the modern award and, in most cases, must not undercut it.  

In addition, some awards require certain clauses in an employment contract to reflect agreed payment arrangements, such as where an employee is paid an annualised salary pursuant to the modern award. 

If you are seeking to vary terms of the award under an IFA, ensure the IFA meets the requirements of the flexibility term in the award. And if you pay staff above the minimum wage rates, consider whether a contractual “set-off clause” is appropriate. 

Ensure compliance with record-keeping and payslip obligations

The Fair Work Act requires employers to provide employees with payslips for every pay period, and various modern awards have more detailed record-keeping requirements. Employers need to review their processes regularly to ensure that appropriate records are kept and maintained for seven years.

If an employee raises a concern regarding award compliance, these records will be crucial, so ensure they are up-to-date and easily accessible. 

Ensure you monitor ongoing compliance

Modern awards are reviewed by the Fair Work Commission on an ongoing basis, and are consistently in a state of flux. These reviews include the national wage review that takes effect at the beginning of each new financial year; but they can also include ancillary updates, including the penalty rate changes that took effect for a number of awards in July this year.

You should keep an eye out for news from industry groups and advisers to make sure your business stays abreast of these developments.

If you have followed these tips and you are still unsure about any aspect of a modern award, you should seek legal advice as soon as possible.

Georgie Chapman is a workplace relations and safety lawyer at HR Legal, which works with many organisations in the retail industry.


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