Underpayment of Wages
We were engaged by a shop owner as a terminated employee had contacted them seeking extra payment and the business owner didn’t think they should pay.
The employee had been employed for about 2 months on a full-time basis working a roster over 7 days; the employee was still within the 6-month probation period when they were terminated by the employer.
Why was the employee terminated? The owner claimed during the short period of employment that the employee (still on probation) was instantly dismissed for misconduct and was untrustworthy and was trying to manipulate the owners against one another. When I asked exactly what the employee was told when employment was terminated, they said the employee was told they were not a fit for the business.
The claim for underpayment of wages.
For an employer to prove details regarding employment and pay, there are documents required as below:
- An employment contract. They had one, but it wasn't compliant. The details that were included needed to be more accurate (e.g. how the salary was expressed).
- Wages/pay rate - the employer had been paying the employee slightly more than the minimum Award rate for the Award classification but at a set rate.
- Time/attendance records – we were told only casuals clocked in and out, not full-time employees.
- Rosters – the business ran on a roster system that was published in advance of the work period, but the rosters did not accurately reflect the work- day/week (e.g. breaks were not accurately shown).
- Payroll details, specifically to look at shift loadings/penalties - the employer said they didn’t need to pay as the employee was on an annual salary that included all overtime.
The employer was unable to provide specific details of shifts actually worked (i.e. start and finish times). The employee had recorded each of their shifts in a diary.
There were claims of issues with the employee's performance, however, there needed to be documented evidence of previous discussions highlighting such issues and outlining what was considered appropriate behaviour; hence the employee had not had the opportunity to modify their behaviour. Whilst their behaviour may have been inappropriate, it was not considered of the nature to amount to serious misconduct, therefore, instant dismissal was not appropriate.
Yes, this employee was on probation – and yes employees can be terminated if things aren't working out, BUT there are rules. Due diligence must be exercised in giving employees a chance to improve their performance and improve on their conduct as required by the employer, and notes must be made of each meeting, and referenced in future meetings.
All employees must also be provided appropriate termination notice (usually at least one week) to either be worked or paid in lieu.
- The contract provided for the review could have been more extensive in the information it required.
- The employee’s wages/salary was stated in the contract as an Annual or annualised salary, however it needed to be presented in a manner that would meet the BOOT(Better Off Overall Test).
- Annual or annualised salaries are allowed, however the arrangement cannot disadvantage the employee, therefore, they must be paid at least what they would have been if Award conditions were paid – this is known as the BOOT (Better Off Overall Test). In this case, the employee was classified at level 1 and being paid at level 2, but the difference was only $1.26 per hour which did not cover the loading for working on a Saturday or for working overtime in excess of 38 hours per week. So the employee was being paid $22.69 per hour for every hour they worked, whereas on a Sunday, they should have been paid upto $42.82/hour.
- The employer needed to be better informed in regard to the recording of hours worked; time records are needed for ALL employees.
- To work out what pay the employee should have received we needed payslips. These were provided but no overtime was shown as every hour the person worked, often around 42 hrs per week, was paid at the same flat rate.
- Rosters were provided and we did some calculations, but when we presented to the employer and highlighted that meal breaks were taken at the wrong time, therefore even move overtime was due, I was told the breaks were just representative and not necessarily adhered to. Rosters and records of hours worked must accurately record when employees are actively working and when on breaks.
- As I mentioned earlier, no clockings were available. Many award rates were varied in March 2020 to provide that employers must have time records for all staff, including those on annualised salaries. The employer must be able to show that employees are not disadvantaged by their annualised salary vs the number of hours worked, the BOOT.
- The lack of records required considerable hours to investigate and in the end we could only rely on data supplied by the employee as the employer could not provide any evidence to counter the employee's claim.
The outcome was:
The employer had to pay about $2,500 in wages including:
- one week in lieu of termination notice
- plus penalty rates not previously paid
- plus extra superannuation
- plus fees for Solutions To Spec to investigate and reconcile this situation
- plus fees for their bookkeeper to provide information and process the extra payment too.
The correct wages were subsequently required in one payment on top of their weekly wage bill as well as wages paid for the person they hired to replace the terminated employee. Add to this the business owner's stress and the added cost of the external bookkeeper to process the extra payments and it became an expensive exercise for the employer.
What did this employer learn during and implement after this matter was resolved?
- Implement compliant, water-tight employment contracts.
- Learn the Award and understand the industry they are working in. Know which are the higher rate shifts. We advise understanding how they can minimise those costs, such as business owners working those expensive shifts themself.
- Seek assistance to model what the employee payments look like with a compliant annualised salary.
- Ensure everyone clocks in and out so that you have accurate time records – teach the employees how to do this properly, and check the details regularly, at least for each pay run.
- Talk to employees about how things are going; no one can amend their behaviour if they do not know what is wrong.
- Review rosters and costings against revenue: ensure profit margins are good, and use whatever tools (e.g. clocking systems) or advisors available can assist with this.
A quick recap
Some key documents to have in place are:
Employment contract – clearly lays out employment conditions and expectations (perhaps in a position description) and holds both parties accountable
Position description – it sets expectations and responsibilities and is extremely useful in performance discussions
Time and attendance records – critical for accurate payments and settling disputes, not to mention for verifying injury claims too
Pay slips – a legal requirement, but must be accurate
File notes of discussions – we should not rely on our memories. It might be months or years before a query is raised.
Employment documentation and practices must be compliant with the law whilst also being manageable for your business and consistently applied across the business. What might seem like a quick fix to minimise costs can end up being a major issue with the potential to affect the business owner's stress levels as well as morale, performance, business reputation and financials. Remember, if such matters end up with Fair Work Australia, payments must be rectified, but significant penalties may be imposed on the business/business owner too. For ‘serious contraventions’ of the Fair Work Act, penalties of up to $16,500 per contravention for an individual and $82,500 per contravention for companies can be applied.
In this case, the matter did not go to Fair Work as we worked out a satisfactory resolution with the aggrieved employee, but the outcome could have been different if the employer had not sought out help.
The Solutions To Spec team provide support to many businesses on many matters, and occasionally the team have to deliver news that is difficult for clients. As an HR partner/advisor, it is our role to provide advice/guidance in a manner that business owners and managers can use to make an informed decision to ensure their business is industrially compliant and prosperous for both employer and employee. Our goal is always to reduce stress on the employer by providing peace of mind and also strategies for improvement to avoid these difficult situations in the future.