Underpaying staff: 7 of the most common mistakes


Recent news that 84 per cent of fast food employers in Australia underpay their staff is not only startling but problematic. For any employer caught underpaying staff, it can be costly both financially and for the business’s reputation.

Enforcement litigation brought by the Fair Work Ombudsman (FWO) can result in orders for back pay and monetary penalties for workplaces found guilty of underpaying staff.

Penalties can be ordered against directors and managers (including human resources managers), as well as companies. The maximum penalties for underpaying staff are $54,000 for a corporation and $10,800 for an individual. In 2014-15, the FWO recovered $22.3 million in back pay for over 11,000 workers. 

Here are seven common ways in which underpayment contraventions occur – and the repercussions.

1. Short-paid hourly rates, penalty rates, overtime

This is probably the most common form of underpaying staff. In 2015, Ohmedia arranged with Lycamobile to recruit and provide staff to promote Lycamobile’s products. Ohmedia employed 45 casuals, but 37 of the workers were not paid and the remaining eight were paid less than the minimum rate. The total amount underpaid was just over $59,000. Ohmedia was ordered to backpay the employees and received penalties of $85,000. The director was fined $15,000.

2. The deprivation of statutory leave

Some employers deprive their employees of accruing and/or taking leave. Ensuring accurate employee record-keeping obligations are met should avoid errors. Payroll software malfunctions do happen though, and mistakes occur, so errors should be rectified quickly. 

3. Inappropriate deductions from wages

In 2013-14, Baiada, an Australian poultry supplier, came under fire from the FWO when it was proven to have underpaid workers. On top of this, employees were also living in overcrowded residences that were owned by labour contractors. They were told that they would not get work unless they rented from the recruiter; and they were paying exorbitant rent, compulsorily deducted from their pay.

4. Work performed ‘off the books’

Employers who engage in this type of underpaying of workers not only risk being fined by the FWO, but also the Australian Tax Office and State Revenue Office, among other governing bodies.

5. Sham contracting

Sham contracting is claiming that a worker is a contractor when they are an employee (often done to avoid paying for employee entitlements). It is an offence under the Fair Work Act 2009 (FWA) and penalties apply. 

6. Unpaid work experience, internships, volunteers

Employees must be paid unless they are on a vocational placement as defined by the FWA. Generally, unless the work is required by an authorised education or training course, workers will not be on a vocational placement.

Unpaid work experience placements and internships are less likely to involve employment if: they are mainly for the benefit of the person; the periods of the placement are relatively short; the person is not required or expected to do productive work; and there is no significant commercial gain or value for the business derived out of the work.

7. Commission-only arrangements

Unless an award specifically permits it, commission-only arrangements are a no-no. Construction group Longridge employed several sales consultants on a commission-only basis. The Miscellaneous Award 2010, which applied, does not allow commission-only remuneration and Longridge was fined.

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Underpaying staff: 7 of the most common mistakes


Recent news that 84 per cent of fast food employers in Australia underpay their staff is not only startling but problematic. For any employer caught underpaying staff, it can be costly both financially and for the business’s reputation.

Enforcement litigation brought by the Fair Work Ombudsman (FWO) can result in orders for back pay and monetary penalties for workplaces found guilty of underpaying staff.

Penalties can be ordered against directors and managers (including human resources managers), as well as companies. The maximum penalties for underpaying staff are $54,000 for a corporation and $10,800 for an individual. In 2014-15, the FWO recovered $22.3 million in back pay for over 11,000 workers. 

Here are seven common ways in which underpayment contraventions occur – and the repercussions.

1. Short-paid hourly rates, penalty rates, overtime

This is probably the most common form of underpaying staff. In 2015, Ohmedia arranged with Lycamobile to recruit and provide staff to promote Lycamobile’s products. Ohmedia employed 45 casuals, but 37 of the workers were not paid and the remaining eight were paid less than the minimum rate. The total amount underpaid was just over $59,000. Ohmedia was ordered to backpay the employees and received penalties of $85,000. The director was fined $15,000.

2. The deprivation of statutory leave

Some employers deprive their employees of accruing and/or taking leave. Ensuring accurate employee record-keeping obligations are met should avoid errors. Payroll software malfunctions do happen though, and mistakes occur, so errors should be rectified quickly. 

3. Inappropriate deductions from wages

In 2013-14, Baiada, an Australian poultry supplier, came under fire from the FWO when it was proven to have underpaid workers. On top of this, employees were also living in overcrowded residences that were owned by labour contractors. They were told that they would not get work unless they rented from the recruiter; and they were paying exorbitant rent, compulsorily deducted from their pay.

4. Work performed ‘off the books’

Employers who engage in this type of underpaying of workers not only risk being fined by the FWO, but also the Australian Tax Office and State Revenue Office, among other governing bodies.

5. Sham contracting

Sham contracting is claiming that a worker is a contractor when they are an employee (often done to avoid paying for employee entitlements). It is an offence under the Fair Work Act 2009 (FWA) and penalties apply. 

6. Unpaid work experience, internships, volunteers

Employees must be paid unless they are on a vocational placement as defined by the FWA. Generally, unless the work is required by an authorised education or training course, workers will not be on a vocational placement.

Unpaid work experience placements and internships are less likely to involve employment if: they are mainly for the benefit of the person; the periods of the placement are relatively short; the person is not required or expected to do productive work; and there is no significant commercial gain or value for the business derived out of the work.

7. Commission-only arrangements

Unless an award specifically permits it, commission-only arrangements are a no-no. Construction group Longridge employed several sales consultants on a commission-only basis. The Miscellaneous Award 2010, which applied, does not allow commission-only remuneration and Longridge was fined.

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