As an employer, understanding your legal obligations is vital. One of the most important obligations is knowing the minimum you need to pay an employee.

Paying the correct wage is a legal requirement. Failure to pay your employees correctly can result in employees or the Fair Work Ombudsman (FWO) commencing proceedings against your business. This article will provide you with guidance on what you need to pay employees covered by either an award or an enterprise agreement.

Correct Rates of Pay

There are a number of legal instruments which govern employment law in Australia.

The Fair Work Act 2009 (Cth) (and its regulations) set out a national framework of obligations for businesses. This extends to employment laws and standards, which can be:

These laws and standards work together to set out employment law obligations for both employers and employees.

Modern Awards

Each year, the Fair Work Commission (FWC) determines the national minimum wage and any increases to it. This also increases the modern award minimum wages. These new wage rates become effective from the first full pay period commencing after 1 July each year.

Most Australian employees are covered by a modern award that best suits their industry and/or the employees’ duties. As an employer, if you have many staff in different roles, you may have to comply with more than one award. Knowing the relevant awards for your staff is vital to paying them correctly.

Clauses in a Modern Award

Each modern award sets out a number of provisions:

 

Provision Description
Permanent staff and trainee rates of pay These are specific rates.
Casual, junior and apprentice rates of pay (including casual loading)

The award sets out how to calculate minimum rates as a percentage of the permanent rates.

If you have casual team members as well as full-time and part-time team members, you will need to ensure you pay your casual team their correct casual loading.

This loading is typically a further 25% in addition to the permanent employee base pay rate. This loading is to compensate casual staff for the fact they do not accrue personal leave or annual leave.

Overtime and penalty rates (depending on your industry) Penalty rates are usually additional rates of pay for working weekends, public holidays or late in the evening and early mornings. It is important that you pay the correct overtime and penalties to ensure that you adequately remunerate your employees.
Allowances and expenses Allowances are additional payments made to employees for the cost of specific things like:

  • uniforms;
  • travel;
  • car and petrol;
  • tools; and
  • in some circumstances, working in dangerous or unpleasant situations.

Expenses are reimbursements to an employee for any out-of-pocket, work-related expenses.

You cannot force your employees to pay for things like work-related travel.

Award Coverage

Determining the right award is the first step to ensuring you are paying your employees correctly. There are two factors that need to be considered when you are looking at award coverage:

  1. industry coverage; and
  2. occupational coverage.

Industry Coverage

The industry coverage clause generally sets out what industry the award applies in. For example: “This industry award covers employers throughout Australia in the on-site building, engineering and civil construction industry and their employees.”

Industry awards may also explicitly exclude other awards from applying within that industry.

Occupational Coverage

The employee’s specific duties must also be dealt with by the award. The award classifications will usually set out ‘levels’. These levels relate to each employee’s skill set, duties and experience, and also determine the pay rate for that employee.

You can often use your position descriptions to help you determine occupational coverage. You will be able to match the duties listed in your position description against the duties listed under each level of the award.

Enterprise Agreements

If your business has an enterprise agreement, such as a collective agreement or greenfields agreement, the minimum you need to pay an employee may be set by that agreement instead of a modern award.

These agreements set out the employment conditions between a group of employees and an employer. Importantly, these agreements have been approved for operation by the FWC because they leave employees better off overall when compared to the applicable modern award. This is called the better off overall test (BOOT). These agreements cannot contravene the NES or include any unlawful provisions.

It is common for the enterprise agreement to set out both:

  • rates of pay; and
  • how those rates of pay may increase over time.

If you have entered into an enterprise agreement with your employees, you must follow the terms of this agreement.

Breaching an agreement is the same as breaching a modern award or legislative instrument. The FWC may fine and penalise you, and the FWO may investigate and prosecute you.

Key Takeaways

Correctly paying your employees is a basic legal requirement when you are an employer. That means you must know the minimum you need to pay an employee. The most difficult part can be finding out the correct award coverage and classification for your employees.

If you want clear guidance on your obligations under a modern award or enterprise agreement, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Talia Admiraal
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