The importance of reviewing salary and loaded rate of pay arrangements

With the start of the new financial year, the latest high-profile underpayments couldn’t be a more timely reminder of business’ ongoing obligations to ensure employees are receiving no less than the relevant minimum wages and entitlements.

There have been a number of recent examples in the media of high-profile businesses who have been accused of underpaying workers whilst paying loaded rates of pay inclusive of all award entitlements.

The most recent example is a leading restaurant chain, who has allegedly paid skilled chefs as little as $15 per hour some weeks. Allegedly, underpayments occurred due to the amount of unpaid overtime worked by employees which was not covered by their loaded rate of pay.

In the worst reported cases, some chefs have claimed that they received as little as half of what they were entitled to be paid after working their normal 38 hour week as well as overtime, in breach of the minimum entitlements under the Restaurant Industry Award. To make matters worse the alleged underpayments affected vulnerable workers, including migrant workers, who relied on their job to retain their residency in Australia.

This is an important reminder to all businesses to review their loaded rates of pay (and annualised salaries) to ensure they are not paying below the relevant award. This is particularly important in the new financial year in light of the 3.5% increase to all Modern Award rates and the National Minimum Wage, which took effect from 1 July 2018.

In addition to the underpayments, emails that have been leaked to the press are alleged to have instructed employees on how not to record the actual hours worked. If proven, this is a significant breach of record keeping obligations which will now result in substantially increased penalties under the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017.

What this means for your business

These cases highlight the intense scrutiny that businesses, particularly those who employ vulnerable workers, are facing. It is common for businesses, especially those in retail and hospitality, to pay employees a loaded rate of pay.  This has even received support from Fair Work Commission president, Iain Ross, in 2016 when he floated the idea of replacing the weekend penalty rate in the retail industry with a higher ‘loaded’ flat rate.

However, special attention must be given to ensure there are no underpayments. Regardless of the size of the business, diligence and due care must be used when paying employees a loaded rate. Loaded rates may result in an underpayment depending on the number of hours worked and the amount of overtime and/or penalties they would have been entitled to.

There are significant penalties that can be imposed on businesses that underpay their employees. As such, wage rates should be reviewed as wages that were award compliant last year may now result in an underpayment. Now is the time to review loaded rates of pays to ensure they are still award complaint!

If you are uncertain how the minimum wage increase affects your business or would like more information about how HR Assured can help you ensure you are complaint this new financial year contact us today for an informal chat.