What is causing employee wage underpayments

Australia has 120 Modern Awards and many enterprise bargaining agreements in place. Within these awards and agreements, there are many provisions relating to different penalty rates and entitlements that employers must provide to their employees. When these provisions aren’t met, employees are often underpaid. In the 2021-22 financial year, the Fair Work Ombudsmen recovered over $530 million in underpayments.

Why do underpayments happen

Before the uncovering of large-scale underpayments some years ago, many businesses believed that their payroll system would be capable of interpreting the award and paying the employee the correct amounts. This often wasn’t the case and it meant many employees didn’t have the correct penalty rates applied to their shifts when they should have. Another cause of underpayments is the assumption that a salary will cover all entitlements under the relevant award or agreement. Many of the large-scale underpayments publicised in the media, were due to salaries being insufficient to cover overtime payments, allowances and penalty rates. Examples of this continue to appear, most recently with Super Retail Group.

Throughout the thousands of payroll audits we and our founding partner ERS Strategies have undertaken, there have been several common errors that we see time and time again. The top five are:

  • Incorrectly classifying an employee or using the wrong award rates,
  • Overtime not correctly paid,
  • Employees not being paid for all their hours worked as a result of manual errors,
  • Meal breaks are not correctly taken, leading to issues with split shifts and overtime, and
  • Employees not being paid their minimum shift requirement.

What’s the impact of underpayments

Underpaying employees’ wages will have numerous impacts on the various stakeholders involved in the process, including:

  • Executives and management time spent reviewing and understanding then remediating the problem,
  • Brand and reputation,
  • Finance team as unidentified errors in payment magnify over time and can also then lead to fines from the regulator, and
  • The ability of a business to retain and hire suitable employees.

How to avoid Underpayments

Businesses want to avoid underpayments, however, from the many that are found to underpay employees, it isn’t always that simple. Payroll audits are crucial to improve compliance and ensure wages are paid correctly and the relevant laws and regulations are being met. If done regularly, errors are likely to be picked up, which will mean employees are back-paid quickly before they grow into large-scale underpayment issues that require complex remediation.

WageSafe is a revolutionary software tool that allows these audits to be undertaken in real-time avoiding costly retrospective remediation. WageSafe is already working with some of Australia’s largest brands and saving them time, cost and mitigating risk. If you would like to learn more please contact our CEO at mark@wagesafe.com.au

Mar 27, 2023

Share this entry


  • In a recent development, Baker’s Delight, a well-known bakery franchise, is facing legal action initiated by the workplace watchdog for its alleged failure to prevent a franchisee from underpaying workers. The Fair Work Ombudsman has filed a case in the Federal Court, accusing Baker’s Delight of being aware of the franchisee’s underpayments but failing to […]

  • The Financial Review highlights the key issue of underpayments in a large retailer. Chemist Warehouse is facing a $10 million backpay bill after the Shop Distributive and Allied Employees Association (SDA) took legal action against four of its South Australian franchisees for allegedly underpaying nine staff while working higher duties. The union identifies that the […]