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How can SMEs avoid wage pitfalls and stay compliant?

Small and medium-sized enterprises (SMEs) often find themselves grappling with the complexities of wage laws and regulations, a challenge that can seem overwhelming.

Ensuring equitable compensation for their workforce while adhering to ever-evolving labour standards is not only pivotal for the success and reputation of SMEs but has become even more critical with recent legislative changes.

Furthermore, the government has encountered criticism for additional elements introduced after its jobs and skills summit. These additions include the reintroduction of compulsory arbitration for intractable disputes and the expansion of multi-employer bargaining. This amendment encompasses a spectrum of changes in workplace relations, spanning areas like bargaining, job security, gender equity, compliance and enforcement, workplace conditions, protections, and the structure of workplace relations institutions.

In this edition of Let’s Talk, our experts delve into the best practices and the practical steps necessary for SMEs to adeptly navigate this intricate web of wage regulations in the wake of these legislative shifts.

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Lauren Karan, Founder and Managing Director at Karan & Co

Lauren Karan
Lauren Karan, Founder and Managing Director at Karan & Co

“Australian businesses today must be proficient in the intricate industrial relations landscape. Ensuring wage compliance requires specific, targeted actions:

  • Understanding Your Industrial Instrument: Every binding agreement or award that outlines employment terms must be interpreted and applied accurately. This requires in-depth knowledge and skill.
  • Seek The Right Expertise: Whether leveraging in-house resources or tapping into external experts, access to the right skills ensures your Enterprise Bargaining Agreement (EBA) or awards are interpreted correctly. Misinterpretation can result in unintentional underpayments.
  • Stay on Top of Hours and Breaks: Carefully monitor the actual hours your employees work, including breaks, to ensure accurate payment for the work.
  • Adapt to the Evolving IR Landscape: The Industrial Relations landscape is dynamic and increasingly complex. Attempting to navigate it without adequate expertise can be risky. If an in-house team isn’t available, seeking external consultants or specialists is advised.
  • Systems in Place: Knowledge is foundational, but the right systems to manage employment terms effectively are critical. They help avoid underpayments and breaches.
  • Commit to Regular Audits: Continual reviews and audits, offer a proactive approach, highlighting potential issues before they escalate.

“Holistically, understanding obligations, having robust systems, and consulting experts ensures businesses remain compliant in a multifaceted environment.”

Ciaran Strachan, Managing Director & CEO at Australian Workforce Compliance Council

Ciaran Strachan
Ciaran Strachan, Managing Director & CEO at Australian Workforce Compliance Council

“First, it’s important to make the distinction between underpayment and wage-theft. Wage theft is criminal in nature and must show intent, or that it was a deliberate act. Overpayments and underpayments are not illegal – they are unintentional, and both are result of poor payroll practices. The impact on a business is the same, financial loss.

“Combined Fair Work Ombudsman and Federal Court data, shows one award is the main issue (retail) which in 2021-22 FY equated to more than 60% of the total (almost $600 million AUD) of underpayments. The main reasons for underpayments in big business are a set and forget mentality for Enterprise Agreements, no Chief Payroll Officer with direct report to the CEO, and HR and Accountants erroneously locking current FY salaries including overtime.

“Additionally, we see poor or no system configuration to Australian Labour Laws, or mistakenly mapping Payroll Compliance under “social” instead of “Governance” for ESG. A common failure by small business, is not investing in a shift/time and attendance plugin for their accounting/payroll product, which cost roughly $5 per employee per month.”

Janine Thompson, Payroll Advisory and Forensic Partner at McGrathNicol Advisory

Janine Thompson
Janine Thompson, Payroll Advisory and Forensic Partner at McGrathNicol Advisory

“There are certain themes we see time and again in underpayment matters. A“set and forget” mentality from businesses—where systems and processes are configured on set up and not revisited again for changes in staff, awards or business operations—is all too common.

“Secondly, payroll tends to be sidelined as an administrative function, which fails to acknowledge its complexity, inherent risks, and the ongoing need to understand the drivers of an employee’s entitlements under the award system.

“Lastly, there is too much reliance on third-party payroll providers to ensure compliance and determine payroll rules when, in fact, this responsibility lies with the business.

“There are three key recommendations for any business to ensure it is taking its payments obligations seriously:

  • Seek independent legal advice on your award coverage and interpretation.
  • Proactively sample test your compliance on an ongoing basis. For example, you can engage external advisors or make use of the tools for self-audit that are available on the Fair Work website.
  • Invest in regular training for your payroll team via organisations such as the Australian Payroll Association.”

David Price, CEO ANZ at Employsure

David Price
David Price, CEO ANZ at Employsure

“Australia has one of the most complex employment laws in the world and it can be daunting for businesses, especially small businesses with limited resources. However, there are a few key steps that employers can take to ensure they avoid costly underpayment claims.

“The first step is to understand the modern awards that apply to their workforce. These awards set out the minimum pay rates, working conditions, and entitlements for employees across the different industries and occupations.

“Following that, it is important to correctly classify employees as full-time, part-time, casual, or contract workers. Misclassification can lead to serious underpayment claims.

“Employers are also legally required to keep accurate records of employees’ work hours, including breaks and overtime work. Businesses should consider using a reliable time-tracking system, which can help minimize errors.

“It is important to communicate openly and transparently with employees about their wages and working conditions. Employers should encourage their staff to report any concerns, and they should be addressed in a fair and prompt manner.

“If businesses followed these simple steps, it would significantly help in reducing the margin of error and potential claims.”

Charles Power, Partner, Workplace Relations and Safety at Holding Redlich

Charles Power
Charles Power, Partner, Workplace Relations and Safety at Holding Redlich

“Prioritising compliance with the Fair Work Act 2009 is the best way to avoid costly underpayments. A reliable payroll system generates accurate time and wage records and reduces the risk of unintentional errors due to a lack of understanding of payroll obligations or outdated administrative procedures.

“There are severe repercussions for businesses that underpay staff, including financial penalties, cash flow strain, high turnover, damaged reputation and, in Victoria, potential imprisonment for employers.

“Businesses can avoid underpayments by:

  • Conducting regular audits to catch and resolve payroll issues early
  • Ensuring staff are classified under the right Award, and regularly reviewing this classification when staff take on additional responsibilities
  • Keeping detailed timesheets and pay records to make sure employees are properly paid and have the proof to support it
  • Taking steps to ensure staff take appropriate breaks and using their time off
  • Ensuring current details of wage increases, employee benefits and any other changes that could affect payments
  • Ensuring use of annualised salaries or loaded pay rates complies with applicable award provisions and wage levels are sufficient to discharge liability for non-wage monetary entitlements, e.g. overtime.

“Seeking legal counsel to understand changes in Awards and to interpret vague terminology is recommended to prevent costly penalties and maintain a compliant payroll system.”

Bijal Parmar, Financial Controller at Banjo Loans

Bijal Parmar
Bijal Parmar, Financial Controller at Banjo Loans

“Firstly, businesses need to understand the market rates for each role within their business and set clear expectations for the responsibilities that go with each job. Sometimes employers make honest mistakes. However, the penalties for underpayment are harsh, so it is important for businesses to mitigate the risks and protect their reputation.

“Ensuring employees are adequately remunerated isn’t just a legal question, but one of sound business practice. If your business has high staff turnover, meaning looking for staff on a regular basis to replace employees leaving, that is another cost to bear and can impact productivity.

“Making sure you seek HR advice is also crucial as they can check whether employees are being paid as per the award, as well as knowing how the salary compares to market rates.

“Clearly, not every business can afford an HR manager, so an alternative is to engage a recruitment agency to do an annual audit to ensure staff are classified under the right award, and how it measures up to the market and the superannuation guarantee is being paid correctly.

“Finally, a bonus scheme is a good way to make sure staff are engaged and working towards a common company goal.”

Rolf Howard, Managing Partner at Owen Hodge Lawyers

Rolf Howard, Managing Partner at Owen Hodge Lawyers

“The underpayment of wages is a serious issue. Employers who fail to pay minimum wages, allowances or penalty rates may be sued or even prosecuted to recover the underpaid amounts. In recent weeks, we’ve seen the likes of Best & Less, Chatime and Woolworths all in the news for the underpayment of wages.

“The government is cracking down on wage theft via the Closing Loopholes Bill, which will see employers who deliberately underpay workers at risk of being jailed for up to 10 years and fined $7.8 million. Businesses which engage in large-scale underpayment of their staff will face much larger fines.

“To avoid underpayment of wages, employers should audit and update the following as required: how allowances and penalty rates are paid, how base rates are classified in employment contracts, how hours of work are recorded, how leave is accrued, and finally whether job titles and remuneration accurately constitute fair pay for work undertaken.

“Working with an employment lawyer to ensure you’re compliant is always a good strategy. They’ll advise on awards entitlements including any industry specific redundancy schemes, long-service leave and notice periods. They will also ensure that salary arrangements are legally documented to avoid disputes.”

Mollie Eckersley, Operations Manager ANZ at BrightHR

Mollie Eckersley
Mollie Eckersley, Operations Manager ANZ at BrightHR

“Many underpayment cases are caused by businesses not understanding their obligations or reporting payroll issues themselves. This shows that there is a bigger problem and businesses need a confidential way to get expert advice from people who know the awards system and how to navigate it.

“It’s a turbulent time for employment relations in Australia with several significant changes made to the Fair Work Act this year alone. Businesses need to have modern tools to keep up with the changes. Especially small businesses that don’t have the resources of their larger counterparts.

“However, standalone tools don’t cut it. A Payroll Navigator is useful for accurate reporting and secure storage of confidential information. But if these digital tools aren’t supplemented with instant employment relations advice businesses will continue to make costly mistakes.

“How can businesses avoid underpaying wages and navigate the awards system? By investing in HR systems that can help them manage payroll and compliance more effectively.”

Nigel Glasspool, Client Director at Pitcher Partners

Nigel Glasspool
Nigel Glasspool, Client Director at Pitcher Partners

“Businesses should implement automated time capture devices and attendance systems to replace manual timesheets, because accurate capturing of start and finish times are needed to correctly apply award pay rules.

“Scrutiny around wage theft is higher than ever, but the complexity and ambiguity of the awards system results in many employers unknowingly underpaying workers.

“It’s often not that wages are calculated incorrectly. Where people are caught out is when they haven’t been able to properly determine times people have been working, haven’t considered multiple roles or locations, or haven’t correctly classified the job being performed.

“Employers must take reasonable steps to ensure they meet obligations under the Fair Work Act, and past experience shows that reasonable actions include regular payroll compliance reviews.

“It is essential that employers pay attention to hours worked, and to run an annual reconciliation that compares salaries to full entitlements under the award – specifically considering the Better Off Overall Test (BOOT) for salaried employment contracts with an underpinning award.

“Corporate leaders and directors need to be fully aware of the risks they face — and the criminal penalties that can be imposed — if they are not across the detail of their employee payments.”

Dhanush Ganglani, Managing Director at Eden Exchange

Dhanush Ganglani
Dhanush Ganglani, Managing Director at Eden Exchange

“Navigating the Australian awards system and ensuring fair wages for employees is crucial for businesses. They must balance meeting legal requirements and maintaining a competitive advantage.

“Here are some steps businesses can take:

  1. Stay Informed: Keep yourself updated on the relevant awards and industrial relations legislation. These can change, so regular monitoring is essential.
  2. Classify Positions Correctly: Ensure that each employee is correctly classified under the relevant award. Job roles and responsibilities can evolve, so periodically review and adjust classifications as needed.
  3. Use Payroll Software: Invest in reliable payroll software that is regularly updated to comply with current regulations. This can help automate calculations, reducing the risk of errors.
  4. Record Keeping: Maintain accurate records of employees’ hours worked, leave taken and wages paid. This is not only a legal requirement but also helps in case of disputes or audits.
  5. Employee Feedback: Encourage open communication with employees regarding their pay and conditions. This can help identify issues early and prevent underpayment claims.

“Remember that the awards system is designed to protect the rights and entitlements of employees. By taking a proactive and compliant approach, businesses can not only avoid underpaying wages but also build a positive and ethical workplace culture. It’s essential to strike a balance that benefits both the company and its employees.”

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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