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Employee underpayment: 7 mistakes your boss is making

Man holds crumpled euro note. Source: Getty
Man holds crumpled euro note. Source: Getty

Every few months, you read about another major employee underpayment scandal in the news.

Rebel Sport underpaid workers by around $43 million in February this year, while Foodora delivery riders in Australia were awarded almost $3 million in backpay earlier this month, even though it was about $5 million short of what they were owed.

Lush Cosmetics, Maurice Blackburn and Rockpool were among other major companies that failed to pay workers correctly last year, and no doubt there will be more to come.

So, why does it happen?

Payroll expert at the Australian Payroll Association, Tracy Angwin, says underpayments are more common than you might think, and employee clauses and legislative changes make it even harder for major companies to keep up.

On top of that, the average payroll manager received under three days of training per year, and yet they’re in charge of millions of dollars in payments, which could definitely lead to error.

But, here are 7 other mistakes that lead to major employee underpayments:

1. Incorrect calculations in overtime provisions

Overtime rules vary by the industry, but employees must have a minimum of 10 hours between shifts. So, if the break is fewer than 10 hours, like it often is in hospitality, aged care and social service, employees must be paid overtime rates until they do receive their 10-hour break.

2. Failing to pay overtime penalty rates to part-time employees

While some companies fail to calculate overtime correctly, others just plain don’t pay overtime penalty rates. Some employee awards actually require overtime rates to be paid to part-timers when they work more than their contracted hours.

3. Underpayment or termination

The most common error here is payroll managers failing to refer to the Fair Work Act in addition to the relevant employee award, Angwin said. The Act entitles employees over age 45, who have had at least two years of service with the company, to receive one additional week of notice upon termination.

4. Superannuation underpayments

Many employers fail to pay superannuation on employee payments on top of regular wages or salary. Angwin says super must be paid on any employee payment that is regarded as ordinary time earnings, including bonuses, leave loading, payment in lieu of notice termination and cashed-out annual leave.

5. Only paying the base rate on annual leave payments

The Australian Payroll Association says this error has been identified across multiple organisations in the health support services and manufacturing sectors. Where employees on annual leave should receive the full payment owed to them, like penalties and allowances, they often don’t.

6. Excluding commissions and bonuses from long service leave

Employers often don’t include commissions, incentives and bonuses when they calculate the value of long service leave, but they should.

7. Lack of payroll reviews and outdated systems

This ties in with a lack of training for payroll managers, but a major oversight that contributes to all of the above errors is failing to review the accuracy of payroll systems.

Also, if payroll managers aren’t on top of legislative changes, new regulations that benefit employees won’t be implemented.

I think I’m being underpaid, what do I do?

If you think you’re being underpaid, you can use Fair Work Australia’s Pay Calculator to calculate your base pay rate, allowances and penalty rates (including overtime).

Fair Work advises that you look at your pay to figure out what you’re getting paid and if it lines up with your correct pay.

If it doesn’t, calculate how much you’ve been underpaid, take it to your employer, and ask to be back paid.

If they can’t afford to back pay you in a single payment, employers can organise a payment plan with you to pay you over weeks or months.

If you can’t resolve your underpayment in the workplace, the Fair Work Ombudsman can organise a mediation with you and your employer.

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