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Warn your clients: 7 mistakes that lead to employee underpayments

August 2019

Incorrect calculations, underpaying superannuation and only paying the base rate on annual leave payments. Tracy Angwin of the Australian Payroll Association says inadequate training for payroll managers is often the reason behind errors. She identifies most common mistakes that lead to underpayments.

  1. Incorrect calculations in overtime provisions. Mistakes are made when organisations do not ensure every ruling on overtime has been considered. Many employee awards have numerous sections on overtime – for instance in the ‘overtime’, ‘breaks’ and ‘part-time work’ sections. Overtime is often overlooked.

  2. Underpayment on termination. The most common error here is payroll managers failing to refer to the Fair Work Act 2009, in addition to the relevant award. The Act entitles employees aged over 45 who have had at least two years of service with the organisation to receive one additional week of notice upon termination.

  3. Failing to pay overtime penalty rates to part-time employees. Many organisations erroneously place the same rules on overtime payments to part-time employees as to full-time employees. However, some common employee awards – such as the retail award and clerks award – require overtime penalty rates to be paid to part timers when they work more than their contracted hours.

  4. Superannuation underpayments. Many employers fail to pay superannuation on employee payments on top of regular wages or salary. Super should be paid on any employee payment that is regarded as ordinary time earnings – this includes bonuses, leave loading, payment in lieu of notice of termination, and cashed-out annual leave.

  5. Only paying the base rate on annual leave payments. The awards governing employees in some sectors, such as health support and manufacturing, require that annual leave payments include the full payments owed to the employee if they had worked. This includes penalties and allowances, not just the base rate of pay.

  6. Excluding commissions and bonuses from long service leave. Many employers do not include commissions, incentives and bonuses when they calculate the value of long service leave. These payments should be included when long service leave is paid.

  7. Lack of payroll reviews and outdated systems. A major oversight that contributes to all of the above errors is failing to review the accuracy of payroll systems alongside legislative changes.

If in doubt over whether employees are being paid correctly, seek independent expert advice from an employment law firm or encourage your client to do so. You may also wish to contact the Fair Work Ombudsman.