It is the duty of the employer to avoid an underpayment of wages claim and ensure that their employees are being paid the correct amount in accordance with the modern award system.

Common examples of underpayment

In order to avoid or quickly react to underpayments, it is important that employers are able to quickly identify common scenarios where an underpayment claim may be made. Such scenarios include:

  • Where the employee’s hourly pay is less than the minimum prescribed in the relevant instrument.
  • Where the employer does not pay leave.
  • Where the employer does not pay overtime, penalty rates, allowances or loadings.
  • Where the employer conducts unpaid work experience, internships or volunteering and the employee is not on a vocational placement.
  • Where the employer wrongly claims the employee is a contractor when they are actually an employee.

This list is not intended to be exhaustive, but demonstrates the multitude of ways in which an underpayment claim may arise. If you are unsure whether there may be grounds for an underpayment claim, contact JFMLAW to discuss.

How to avoid an underpayment of wages claim

There are a number of ways in which employers should seek to avoid underpayment claims entirely.

  1. Calculate base pay – Employers can use tools such as the Fair Work Ombudsman’s Pay Calculator to find out base pay rates, allowances and penalty rates (including overtime) according to the applicable modern awards.
  2. Set off clauses and individual flexibility agreements – Employers whose workers are covered by complex Awards that require the payment of overtime and various allowances may want to include a set off clause in their employment 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.
  3. Good record keeping – employers should keep good records of payment made to employees, hours worked, overtime and allowances in order to make sure employees are not underpaid.

Read more: The Employers Guide To Handling Underpayment Of Wages

Understanding Modern Awards

A modern award sets out the minimum wage and conditions of employment that an employee will be legally entitled to. Awards include entitlements such as pay, penalty rates and overtime. Employers can find out which awards may apply to their industry using the Fair Work Ombudsman’s ‘Find my award’ tool (link:

Investigation by the Fair Work Ombudsman

Where an employee has allegedly been underpaid, they may lodge a complaint with the Fair Work Ombudsman (FWO). A workplace investigator will then be assigned to investigate the complaint on behalf of the employee.

Before commencing a full investigation, and where it is determined to be suitable, the FWO may undertake Assisted Voluntary Resolution. This is a process of dispute resolution where the investigator contacts the employee and employer separately in an attempt to reach a mutually agreeable solution. If the matter remains unresolved after 30 days, the matter will be referred to a full investigation.

If the matter proceeds to a full investigation, the FWO has the power to require employers to provide records of employee pay and timesheets, employment contracts, and any other documents relevant to the investigation.

Once the investigation concludes, the FWO will decide whether underpayment has occurred, and, if so, what actions must be taken to remedy the issue. Possible enforcement actions that may result from an investigation include:

  • Issuance of a contravention letter – identifies the issues and requests the employer rectify them within 14 days.
  • Alternative dispute resolution – may include methods such as mediation.
  • Referral to small claims – allows the employee to take their own action in court to recover small amounts.
  • Penalty infringement notice – employers may face penalties of up to $6600 per contravention for an individual and $33,000 per contravention for a body corporate.
  • Litigation – the FWO may commence legal action against the employer.
How to rectify an underpayment claim

Firstly, you need to consult your records or conduct a workplace audit in order to determine exactly how long the employee has been underpaid and how much they have been paid in that period. This is one of the reasons why it is important to keep good records.

You should then work out how much the employee should have been paid. The FWO’s Pay Calculator may be useful in this regard. Any additional tax and superannuation that should have been paid will also need to be considered.

Once you have worked out the difference between how much should have been paid and how much was actually paid, you should seek to back pay the employee as soon as possible.

For a deeper discussion of the issues covered in this article, please do not hesitate to contact JFMLAW. Our employment law specialists have a wealth of knowledge and experience in helping employers to avoid underpayments and defend from underpayment claims.