In Short
- Employees can pursue underpayment claims based on breaches of employment contracts, modern awards, or enterprise agreements.
- Contractual claims occur when employers fail to meet contract terms, like underpaying salary, withholding bonuses, or making unlawful deductions.
- Employees have up to six years from the date of the alleged underpayment to file a claim, even after employment ends.
Tips for Businesses
Ensure employment contracts comply with the Fair Work Act 2009 and relevant awards or agreements. Regularly review contracts to reflect any changes in legislation or business needs. Maintain accurate payroll records to identify and correct discrepancies, reducing the risk of underpayment claims.
Growing your business and employing people brings with it some inherent risks. One risk is underpaying wages or other employee entitlements. Depending on the documents that govern your employee’s entitlements, an employee may pursue an underpayment claim about wages or entitlements under contract, a modern award or an enterprise agreement. This article outlines the different claims that can arise if you underpay wages or entitlements.
Contractual Claims For Underpayment
Under the Fair Work Act 2009, there are minimum entitlements you owe all employees. These are called the National Employment Standards (NES). In addition, modern awards cover employees in particular industries or occupations in any industry, which also set certain minimum entitlements.
Employers can enhance or tailor an employee’s remuneration and entitlements beyond these minimums standards in an employment contract. An employment contract is a separate bargain between an employee and an employer. Hence, if you do not pay your employee in accordance with the employment contract, the rules of contract law will govern the dispute.
Who Can Bring a Contractual Claim For Underpayment?
Any employee with an employment contract setting out any entitlements under their contract can bring this type of claim.
When Can Employees Bring a Contractual Claim?
An employee has six years from the alleged breach of the contract to bring a claim in connection with that breach. This timeframe applies whether or not you or the employee have terminated the contract.
What Can the Employee Claim?
A contractual claim might relate to:
- underpayment of salary or unlawful deductions from wages;
- non-payment of a contractual bonus; or
- non-payment or underpayment of a commission you owed under a commission structure incorporated into the contract.
What is the Process of a Contractual Claim?
Court proceedings for underpayment claims differ depending on the amount the employee claims.
| Claimed Amount | Process |
| $20,000 or less | If the employee’s claimed amount is less than $20,000, the small claims court of the Federal Circuit Court can hear the claim. The Court can also hear claims relating to bonuses or commission incentive payments. Small claims proceedings are often quicker, cheaper and more informal than regular court proceedings. Additionally, employees can generally represent themselves. In their application, the employee would set out how and why they believe you have underpaid them and attach all evidence, such as payslips. Once they have submitted these to the Small Claims Court, the employee must serve these documents on you in advance so you can prepare a response. A hearing date will be set, and a single judge will hear the case. The small claims court can award a maximum of $20,000 to successful employees. |
| Over $20,000 | If an employee has a claim worth over $20,000, the typical venue for actioning this claim will be via a general application to the Fair Work division of the Federal Circuit Court. Firstly, the employee will generally send you a letter before initiating court proceedings via a ‘letter of demand’. This letter sets out what they believe you owe them. This step allows you to pay the claimed entitlements without needing to file a court application. Nevertheless, if this route is unsuccessful, the employee can submit an application form and affidavit to the Court. For large or more complex claims, such as unpaid bonuses, the employee can file an application in the Federal Court of Australia (FCA). |
Underpayment Claims Concerning an Award or an Enterprise Agreement
Where a modern award or enterprise agreement is the source of the employee’s entitlement, an employee can bring the following claim.
Who Can Bring Underpayment Claims?
Employees can bring this type of claim if a modern award or enterprise agreement covers them.
When Can Employees Bring Underpayment Claims?
Again, the employee has six years after the alleged breach to bring the claim.
What Can the Employee Claim?
An employee may claim payment of their base pay rate, penalties, allowances, or leave entitlements. Claims can also be about unlawful deductions you might have made from their pay.
In addition to the monetary amounts claimed, it is also for employees to claim:
- any psychiatric or psychological injuries they suffered as a result of the non-payment of the amount claimed; or
- missed opportunities for further employment.
What is the Process of Underpayment Claims?
Most modern awards and enterprise agreements contain a dispute resolution clause you and your employee must follow. Generally, an underpayment claim arising from a modern award or enterprise agreement culminates in conciliation before the Fair Work Commission (FWC).
The relevant award or enterprise agreement may indicate that the FWC has ultimate jurisdiction to decide the matter. That is to say, the FWC’s decision will bind the parties. Any party wishing to appeal the FWC’s decision must file a claim in the Federal Court.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
As an employer, you face the risk of an underpayment dispute relating to your employee’s wages or other entitlements. The nature of the underpayment claim and the forum in which the dispute arises ultimately depends on whether your employee brings the claim under the employment contract, a modern award or an enterprise agreement.
If you need help responding to an underpayment claim, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A contractual claim might relate to underpayment of salary or unlawful deductions from wages, non-payment of a contractual bonus, or non-payment or underpayment of a commission you owe under a commission structure incorporated into the contract.
An employee has six years from the alleged breach of the contract to bring a claim in connection with that breach. Notably, this timeframe applies whether or not you or the employee have terminated the contract.
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