Calculating wages to avoid penalties

For regular followers of the Fair Work Ombudsman (the FWO) website, you would see that employers across Australia regularly receive compliance orders requiring them to back pay award entitlements and superannuation, demonstrating that they did not comply with the terms of the relevant modern award. Such errors can and often do result in business owners facing substantial penalties and legal costs.

The Fair Work Act 2009 (the FWA) provides the framework for employment in Australia. Within the FWA is the National Employment Standards (NES). The NES provides the minimum entitlements for all employees in Australia, regardless of age and experience. The FWA also provides for the making of modern awards and enterprise agreements. Modern Awards form an essential component of the Australian industrial relations system and yet, many people do not understand how they work or even that they exist.

Recent Queensland business

Recently the FWO reported that they had secured a total of $14,200 in penalties in the Federal Circuit and Family Court against the operators of a fence construction business in Goondiwindi. The Court imposed a $12,000 penalty against the company and a $2,200 penalty against the Company’s sole director, because the Company failed to comply with a Compliance Notice requiring the back-payment of entitlements to a foreign worker who was employed as a casual construction worker.

The worker, was paid a flat hourly rate, was underpaid the minimum casual wage, casual loading, overtime rates, and weekend and public holiday penalty rates amounting to $8998.75. In response and addition to the penalties, the Court required that the Company comply with the Compliance Notice, which included rectifying the total underpayment in full, plus paying superannuation on the unpaid entitlements.

Café operator penalised

Former Perth restaurant operators penalised $77,922

Common errors

Most commonly employers, particularly in small and medium sized businesses, do not realise that there is probably a document that sets the minimum amounts payable for workers in their industry.

Flat hourly rate

It is not unheard of for an employer to set an hourly rate, thinking it to be a ‘fair’ rate for the work to be done. However, a few things can go wrong with that approach, as highlighted in the featured Queensland case above.

There are very limited circumstances in which a wage earner would receive a flat rate and business owners should be cautious about using such an approach without verifying the relevant modern award rates that apply to a worker. Even if an employer has agreed to pay an hourly rate that is above the relevant award minimum, it may well be insufficient to cover overtime, weekend penalties and public holidays.

Not paying penalty rates

Most private sector employees are covered by a modern award and will be entitled to additional payments above the hourly rate if they work on weekends and public holidays. Each award documents the circumstances in which an employee will be entitled to overtime or penalty rates (these are different), for example, when they work more than 38 hours in a week or 10 hours in a day, or when they work on a public holiday. Failing or refusing to pay an employee the minimum rates and penalties provided in a modern award, is a breach of the FWA. Further, an employee cannot agree to accept less that they are legally entitled to, so a contract that says they will not seek further payments will be void with regard to penalty rate payments, and the modern award will prevail.

The FWC provided a very clear opinion in a recent decision to terminate a collective agreement, citing the employer’s conduct in presenting a non-compliant agreement to its employees that avoided paying penalty rates, recommending that the employer should “consider very seriously its moral obligations to its employees” and “never offer an employee a voluntary hours document, and where an employee has requested to work without the payment of penalty rates, it should refuse to allow the employee to do so in the future” and that the employer’s actions were a disgrace, suggesting their conduct was unfair to all of the businesses that comply with their award-based payroll obligations.

Mantle Group decision re terminating agreement


A more common misconception is that employees can simply be paid a salary and they will not be entitled to any further payments. A variation on the previous two errors, it does not consider the compounding effect of requiring workers to work on weekends or public holidays without additional payment and that any ‘additional’ amount can be quickly absorbed.

Salaries do have a place in employment but should be handled carefully and with professional advice and assistance. An effective salary arrangement must make sure the employee is ‘better off overall’ than they would have been if they had been paid all of their award entitlements.

Incorrect classification

Even if the correct modern award is applied, the classifications within the award must be applied to determine the correct hourly rate. If a business employs young people, there may also be junior rate discount that applies, and that rate will need to be regularly reviewed.

In addition to the pay rate for job levels, modern awards also include a schedule for “Classification Structure and Definitions” that will describe job duties, equating to a minimum rate level within the award. If an employee performs the duties of multiple classifications, the highest one will apply.


Depending on the modern award, there may be allowances that apply to an employee. Some of the common activities (but not all apply to every award) that may trigger an allowance entitlement are:

  • The requirement to wear a uniform or special safety clothing;
  • Holding a first aid certificate;
  • Living away from home for work;
  • Using personal vehicle or mobile phone for work purposes; or
  • Meal allowances when working overtime.

If you are going to impose a condition or require a special qualification, you must check if an allowance will also apply to the person meeting that requirement.

How can you avoid fines?

Good advice from professionally trained and accredited/registered business support is the best way to avoid problems. You cannot be expected to know everything, but you can know who to talk to for advice. Professional advice from employment lawyers and accountants experienced in running businesses, and bookkeepers who run payroll will assist your business to comply with the myriad laws that apply to business operations. The important consideration is to not guess or assume anything.

Professionally drafted employment contracts will alert you to the payments your employees will be entitled to receive and will give your employees clarity about their entitlements and obligations in their employment.

If you are establishing or growing a business or think you might need to audit your current arrangements, Active Law can assist you. You can contact us at or by calling 07 3160 0000.

Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.