Underpayment of wages refers to a situation where an employer fails to pay the minimum monetary amounts due to an Employee including wages, allowances or penalty rates prescribed by the applicable instrument.
An employee can recover any underpayment of wages and/or entitlements under s539 of the Fair Work Act 2009 (‘FW Act’). The employee is able to lodge a complaint with respect to an underpayment of wages and/or entitlements to the Fair Work Ombudsman, or if the employee is a member of a union, they can request their union to instigate an underpayment of wages claim.
Where an employer is prosecuted for the recovery of an underpaid, the employer may face penalties of as much as $6,600 per contravention for an individual and $33,000 per contravention for a body corporate.
Criminalising Wage Theft
The Queensland and Victorian Governments have passed legislation from 2022 and 2021 respectively to criminalise wage theft. This decision reflects the shift in characterising wage theft as a criminal act as opposed to an administrative error.
Please note that the NSW Government has tabled a proposed scheme to include criminalising wage theft but has yet to pass it into law. If this legislation is passed, NSW will follow their eastern border counterparts. The most egregious conduct to systematically and intentionally underpay employees will fit the definition. We shall update our members if and when this comes to pass.
Recent Action
As of January 2023, Super Retail Group Limited, which is home to brands such as Rebel Sport, Super Cheap Auto2, BCF, Rays Outdoor and more, is facing legal action relating to underpayments of more than $1 million following the discovery of serious contraventions of the FW Act.
The legal action, which is brought by the Fair Work Ombudsman (‘FWO’), is focused on a specific group of 146 employees, who, between January 2017 and March 2019, were underpaid a total of $1.14 million.
The core of the breaches relates to salaried staff being paid a wage that did not adequately cover their minimum entitlements under the applicable Award or account for their actual overtime worked. Some individual staff were receiving $34,500 less than what they were entitled to.
What does this mean for Employers?
Employers who do not meet award obligations, including in respect of annualised salaries, are at risk of prosecution and substantial fines.
Underpayments can be calculated as far back as six years, so even where the weekly underpayment may appear trivial, over an extended period these underpayments can grow into substantial sums, which can have serious impacts on business.
Employers should act swiftly to remedy any errors and when an employer identified an error, legal advice should be sought immediately to ensure that the problem is rectified correctly and swiftly.
What to do if you think you have underpaid your employees?
Underpayment of wages can often happen because of a misunderstanding of the law, a mistake or payroll error.
Before you start trying to fix an underpayment make sure you check the relevant Award. Enterprise Agreement and employment contracts. You will need to consider the workers pay slips and time and wages records, information about tax obligations and super guarantee contributions.
Using the pay records, find out during which pay periods the underpayment happened.
It is recommended that you contact NECA as soon as you become concerned about a potential underpayment.
We will need to calculate how much the employee should have been paid in total during the underpayment period. This should be based on the employee’s pay rate, the number of hours the employee worked and when, compared against what the employee is owed under the applicable industrial instrument including penalty rates, overtime or allowances, leave payments or leave loading or any other entitlements in the employee’s award or Enterprise Agreement.
Once you determine how much the employee has been underpaid, you should arrange for a time to speak with your employee about the underpayment. You should explain what happened to cause the underpayment and how it has been fixed. If the underpayment amount is more than the business can afford in a single payment, you may work out a payment plan with the employee. If the employee agrees, you need to make a written agreement, signed by the employer and employee which includes the amount and frequency of the payments and the method of payment.
We recommend our members conduct an urgent review of your employee pay records to ensure you are in compliance. Please contact our legal team for any assistance to conduct a basic wage audit. We are here for our members to assist you to navigate through regulatory compliance.
Advice & Support
Should you have any questions or require further clarification, we encourage you to connect with CTI Lawyers Workplace Relations Specialists to get specific guidance and expert assistance on this matter. They are highly knowledgeable in these areas and will be able to provide you with the necessary support.