It is the duty of employees to avoid underpayment of wages issues by ensuring that their employees are being paid correctly and that good records are kept regarding employees and payment.

Employers also have a duty ensure that they are paying employees ALL their entitlements, leave and overtime.

Set off clauses and Individual Flexibility Agreements, and how they help employers avoid underpayment of wages

For employers whose workers are covered by complex Awards that require the payment of overtime and various allowances, it may be worth including a set off clause in your contract or a separate Individual Flexibility Agreement. This will reduce the likelihood of accidental underpayment by an employer as it simplifies the payment of employees to a regular amount, streamlining payment and record keeping.

A set off clause is usually contained in the contract and confirms that allowances and overtime are being amalgamated into the employee’s regular wage and so will not be paid separately. There is a strict requirement that the employee be “better off” under a set off provision. The benefit for both the employee and the employer is that allowances and overtime does not need to be recorded and paid ad hoc as they arise, which involves greater record keeping, but can become part of a wage that is higher than the amount stipulated as the minimum wage in the Award for that employee. Some entitlements such as leave can not be set off in a set off clause.

An Individual Flexibility Agreement is a more complex path and must be agreed between the employer and the employee after the employee has started working, therefore an employer cannot not hire someone based on the fact that they refused to enter the agreement, in addition they cannot dismiss someone or take other adverse action against an employee who refuses to enter an Individual Flexibility Agreement. Unlike a set off clause, an IFA suspends the Modern Award that applies to the employee. This is most useful when what is stipulated in the Award does not fit or apply to the your workplace. For example if the ordinary hours in the Award are 9am to 5pm but for both you and your employee, working regular hours from 8am to 4pm would be more convenient, an IFA can be entered to vary the Award as it applies to that employee.

IFAs can be entered with regards to the following types of clauses:

  • arrangements for when work is performed, such as working hours
  • overtime rates
  • penalty rates
  • allowances
  • leave loading

Again, the employee must be better off under this arrangement.

Both of the above options cannot be used by employers to avoid or revoke their obligation to pay employees correctly, but they can be used to streamline and simplify payment and record keeping, in the case of set off clauses or effectively amend Award provisions to make them better suit a business’ requirements or an employees needs that both parties are in agreement on, in the case of IFAs.

The importance of good record keeping

Employers are required to keep records of payment made to employees, hours worked, relevant overtime and relevant allowances. Record keeping will assist employers to keep track of payment of employees to ensure that employees are not being underpaid. In the event that an employee makes a claim of underpayment against you as an employer, good records will also assist in defending an underpayment claim by demonstrating what was paid and when.

Defending an underpayment claim

Defending an underpayment claim can be costly, time consuming and a drain on business resources generally. It is preferable to end these matters promptly and avoid litigation or drawn out negotiations.

Some underpayment claims are simple in that allowances or leave entitlements, for example, have not been paid and so are owed. Calculations will be necessary, and interest will need to be calculated on top.

More complex allegations may surround whether a contractor should have been classified as an employee, what classification an employee should have been paid at or any other complexity.

Call JFMLAW for assistance in drafting a set off provision into your contracts or for advice around Individual Flexibility Agreements or for assistance in defending and managing allegations of underpayment of wages.