Why paying above award rates doesn’t always mean you are payroll compliant

One of the common push backs to compliance reviews, for full time employees on annual salary arrangements, is “we pay above award rates”.

Meaning businesses intentionally pay their full time employees above award rates, and use the set-off clause to allow these above award salaries to be set-off against some award entitlements like penalty rates or overtime.

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However, what we have seen in the media is that some businesses pay full time employees an annual salary, yet still find themselves in trouble, dealing with a large remediation project. 

The assumption is that paying above award rates will hopefully ensure compliance, but businesses still fail to consider the actual hours being worked, what entitlements employees should be receiving and what the business should be recording. 

Without ongoing reviews over the course of the year, it can result in a potential underpayment that is greater than the increased rates. 

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Paying above award rates but not including overtime scenario 

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David works in an administrative role in the private sector, on level three of the Clerks Award. The minimum pay rate for this level position is $993.80 per week, equivalent to $51,677 per annum.  David is paid an annualised wage of  $57,000.00 inclusive of $5,323.00 to account for penalty rates and overtime.

On average David worked three hours of OT a week, one hour a day, three days a week. Therefore he is entitled to an extra $117.69 per week based on the applicable OT rates in the Award. Over the course of the year that's $6,119.88 in unpaid overtime.

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Although David is paid $5,000.00 above the Award rates, the failure to consider the overtime hours worked by Davidas resulted in an underpayment of $796.88. 

Meaning there was an underpayment of roughly $796.88 over the course of the year. 

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‍Other examples 

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The scenario above is one example of just one entitlement not being included. We have seen examples in the media of full time employees working much more overtime and attracting penalty rates and not receiving correct pay. 

We have seen two of the country's biggest employers taken to court, after failing to consider all entitlements when calculating employee pay. Both failed to allow staff to take breaks, resulting in the both businesses caught up in large-scale lawsuits. 

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The cost of overpaying employees 

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Pay above award rates is potentially costing your business a lot more money than necessary. Understanding why employee pay variances have occurred and which employees may be at risk of under or overpayment will allow you to put in place better controls to prevent any variances from occurring. 

You are going to save money in wages, avoid any potential investigation, remediation work that we have now seen with countless large, well resourced companies. 

What this approach also doesn't provide is a way of proving your compliance. If an investigation does occur, saying “we pay above award rates” isn’t going to provide the evidence or the tools that you need to easily prove your compliance. 

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Misconceptions about variance in employee pay

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Based on the general media attention focused solely around underpayments, many of the public don’t truly understand that most companies are overpaying as much as they are underpaying. 

In general what we find with most companies is that across the business there is roughly an equal amount, if not more of overpayments as there is underpayments. 

Businesses have the ability to save themselves unnecessary costs in the form of overpayments as well as prevent any potential underpayments, through ongoing compliance checks looking at all employees.