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Significant media coverage of widespread underpayments has highlighted its financial and reputational risk. To address this, you should conduct a wage audit to understand the applicable minimum pay rates and employment conditions. This will assist in identifying and rectifying any past underpayments as well as ensure compliance moving forward. If you choose to voluntarily disclose underpayments to the Fair Work Ombudsman, this may also reduce the risk of prosecution by the Fair Work Ombudsman. It could also speak to the question of penalty if prosecuted. Conducting a wage audit is a substantial and complex exercise, and this article provides an overview of how to conduct a wage audit.

Does an Enterprise Agreement Cover the Employee?

Enterprise agreements (EA) are collective agreements between an employer and employees that modify employment terms that otherwise apply. EAs are typically introduced because they are simpler to administer than modern awards but must be beneficial to employees by adhering to the Better Off Overall Test. Employers who breach an EA commit an offence under the Fair Work Act (Cth). 

Does an Award Capture the Employee?

Many underpayments stem from employers incorrectly interpreting awards, applying the wrong award or ignoring awards altogether, so it’s important to get award coverage right. Modern awards are quasi-legislative instruments which set out minimum pay rates and terms of employment such as:

  • minimum rates;
  • overtime;
  • penalty rates;
  • loadings;
  • allowances; and
  • the right to the consultation if a major workplace change occurs, such as a redundancy. 

If employees are award-covered, employers must comply with the terms of the award failing which they commit an offence under the Fair Work Act 2009 (Cth).

There are over 120 awards to consider, and each includes a ‘Coverage’ clause setting out the scope of the award. You should consider the specific language of each ‘Coverage’ clause, although typically, there are three parts to a ‘Coverage’ clause:

  1. the type of employers which is specific for industry awards and broad for occupational awards;
  2. which employees generally by reference to the classifications; and
  3. any exclusions.

Industry vs Occupational Awards

Employees are covered by an award if they work within a particular industry or if they have a particular occupation.

For example, the Fast Food Industry Award 2010 is an industry award which covers employers throughout Australia in the fast-food industry. In comparison, the Clerks Private Sector Award 2010 is an occupational award that covers employers in the private sector throughout Australia regarding their employees engaged wholly or principally in clerical work.


Classifications set out a non-exhaustive list of criteria to determine employees’ appropriate level based on longevity, qualifications, and duties. Applying the correct classification level to each employee is important because:

  • if the classifications do not capture an employee, the award may not apply. For example, this could occur if the employee is more senior than the highest level set out in the classifications; and
  • it will determine the employee’s entitlements, including their rate of pay.

When it is unclear which classification applies, the more prudent approach is to apply the more senior classification level to avoid underpayment.


‘Coverage’ clauses typically also include exclusions. Such exclusions may assist with overlapping awards. 

For example, this may be where an occupational and an industry award may apply. The Clerks Private Sector Award 2010 says “the award does not cover: (a) an employer bound by a modern award that contains clerical classifications”. On that basis, if an employee performed clerical duties in the health industry as defined in the Health Professionals and Support Services Award 2010, this award would likely apply as it includes clerical classifications.

Another example is where there may be overlap between two industry awards. The General Retail Industry Award 2010 specifically excludes employees who are otherwise captured by the Fast Food Industry Award 2010.

An Award Captures the Employee. Now What?

Each award provides additional entitlements to employees, and you should review the applicable award in detail to determine these. Some of the common terms relevant to underpayment include:

  • minimum rates as set out in the award and the corresponding pay guides;
  • entitlements specific to their type of employment. For example, if they are casual, they may have minimum shifts (e.g. 4 hours);
  • overtime, where they receive an additional rate to their base rate for hours worked that qualify as overtime. Each award defines overtime differently to be coherent with the industry. For example, in the Clerks Private Sector Award 2010, overtime includes (but is not limited to) work performed outside the ordinary hours of work which are 7.00 am to 7.00 pm Monday to Friday and from 7.00 am to 12.30 pm Saturday;
  • penalty rates: an additional rate to their base rate for hours worked on Saturdays, Sundays or public holidays;
  • leave loading which entitles employees to an amount (typically 17.5% of their base salary) during periods of annual leave in addition to their base salary; and
  • allowances, such as a travel allowance, a tool allowance or a uniform allowance.

Considering the employee’s entitlements, you should consider employees’ rates including because they increase each year. You should also review rosters that you use, which may inadvertently create rights to:

  • minimum lengths of engagement;
  • overtime; or 
  • penalty rates which you are not paying.

Is the Employee Award-Free?

If no EA or award applies, then the employee is award-free. Here, the National Employment Standards in the Fair Work Act 2009 (Cth) apply with respect to:

  • leave entitlements; and 
  • minimum wage.

There are no requirements with respect to:

  • overtime;
  • penalty rates;
  • loadings;
  • allowances; or
  • consultation, as is the case in awards.

However, this does not eliminate the risk of underpayment. You need to consider the minimum wage and whether the hours worked over 38 hours per week for a full-time employee or over the agreed part-time hours are reasonable given the nature of the role, wage and circumstances.

Is There an Underpayment?

Once you have determined the employee’s entitlement under an EA, an award or the National Employment Standards, conduct wage audits. You can do this by comparing what they are entitled to with the actual payment made to the employee and determine whether there is an underpayment or not.

Key Takeaways

Conducting an internal audit, without an external auditor, is a complex and involved exercise which requires the employer to determine the source of each employee’s entitlements. Specifically, determining award coverage and how the award applies can be a headache. However, once all entitlements are determined and compared with actual payments made to the employee, you will have clarity on any liability. You can take informed steps to conduct a wage audit and resolve any underpayment. If you have any questions about conducting a wage audit, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.


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