As an employer, paying employees a flat rate can seem appealing. For example, a flat pay rate may be easier from a payroll and accounting perspective, especially if many staff members are covered. However, you must still pay employees at least the equivalent minimum entitlement for all their hours. In addition, the pay rate depends on several factors, including the national minimum wage and the applicable modern awards. This article will explain some key points to consider when deciding whether you can pay your employees a flat rate.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Reasons for Wanting to Pay Employees a Flat Rate
First, it is important to consider why you want to pay employees a flat rate. Different employment instruments set out penalty rates and loadings for things such as overtime, weekends, public holidays, and allowances and loading.
Higher flat rates may encourage some employees to seek longer-term engagement with your business, decreasing staff turnover and ensuring your workforce is committed. Paying a higher flat rate may also be competitive in your industry and appeal to a broader talent pool. Further, paying employees flat rates may also be easier to manage from a payroll and accounting perspective.
Determining how to pay employees can take time and effort. Nevertheless, it is essential to get the correct information and sound advice. An excellent first step is having a structured payroll system to help your business avoid claims.
Flat Rates Are Not Always Cost-Effective
Although a flat rate may seem more cost-effective, your flat rate needs to include all penalties and entitlements. In addition, you will also need to pay the applicable superannuation entitlements and the hourly rate.
Continue reading this article below the formAm I At Risk If I Pay Employees a Flat Rate?
When paying a flat rate, you must be cautious not to breach the Fair Work Act for underpayment of wages. Breaching the Fair Work Act may result in substantial penalties for employees, including fines or even criminal proceedings in extreme cases.
To avoid breaching the Fair Work Act, you must ensure that your fast rate includes provisions and penalties for:
- casual loading;
- weekend and holiday rates; and
- overtime.
If you believe you have underpaid your employees, at a minimum, you must:
- work out how long you have been underpaying the employee;
- work out how much you owe the employee; and
- discuss the underpayment with the employee and confirm a back payment arrangement.
You should also report any underpayments to the Fair Work Commission as soon as possible. This is particularly pertinent where an underpayment has been happening over a long period and for large amounts.
Making a Decision
If you want to pay employees a flat rate, there are many things to consider. Firstly, you must understand the minimum rate you pay your employees. You can then determine whether the payroll and accounting benefits of a flat rate outweigh the:
- cost of the flat rate itself (taking into consideration penalty rates, overtime and allowances); and
- need to continue to monitor compliance.
Key Takeaways
While it is possible to pay a flat rate, you must first thoroughly consider several things. For example, you should evaluate:
- why you want to pay a flat rate;
- whether implementing a flat rate would be more cost-effective; and
- how you would implement a flat rate.
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Frequently Asked Questions
It is possible to pay your employees a flat rate. However, the pay rate depends on several factors, including the national minimum wage and the applicable modern awards.
While there are several benefits to paying your employees a flat rate, such as lower administrative costs, there are many things you must first consider. For example, you should evaluate why you want to pay your employees a flat rate, whether implementing a flat rate would be more cost-effective and how you will implement the flat rate.
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