4 Steps to Rectify & Prevent Underpayment Claims
Wage theft scandals are regularly featured in the news, often from large companies underpaying hundreds or thousands of staff. However, wage theft and underpayment aren’t issues that only affect big businesses and should be front of mind for all employers - from small businesses to large, across all industries. In 2016, approximately 79% of hospitality employers were found to have failed to provide the entitled wages to their staff, with 2.98 million staff underpaid a total of $5.94 billion.
It happens more often than you think, and even for the most diligent employers and accounts teams, some things can slip under the radar and only come to light in an audit or underpayment claim. For this reason, in this blog, we have outlined 4 steps to rectify a wage theft claim.
1. Get the facts
If a wage theft claim is brought to light, your first step should be to stay calm and get the facts. It’s not constructive to make excuses or rash decisions, instead focus on the following to fix the underpayment issue:
Determine the duration of the underpayment
Determine the amount actually paid
Determine what the entitlement was
Calculate the difference
2. Make a back-payment
The employee should be back-paid as soon as possible if your investigation shows that an underpayment issue occurred. The back-payment can be done as part of the next normal pay cycle, or as a separate payment. Don’t forget to keep records of the back-payment in the employee’s pay record.
If the back-payment is more than the business can afford in a single payment, a payment plan can be negotiated between the employer and employee to pay the full amount over a specified period. In these cases, a written agreement of the payment plan must be signed by both parties and a copy kept by each.
3. Identify and address the root cause of error
After the back-payment is made, identify the root cause of the error, and implement systems to prevent another occurrence. Sometimes wage underpayments occur due to payroll errors, missed pay increases and employees paid less than the minimum pay rate they are entitled to. If a payroll error has occurred in only a single pay period, it’s recommended to audit all employees wages for the specified pay period to prevent future underpayment claims and rectify any mistakes.
If one underpayment issue occurs for a single employee, it’s a good idea to audit all employees to:
Ensure they are being paid under the correct modern award and as per minimum wage increases. These are often reviewed each year and come into action from 1 July.
Check whether they are/aren’t entitled to a wage increase from a birthday, duty changes, job-related qualification, or moved to a different pay level.
Ensure the payroll error hasn’t impacted other employees too
4. Seek legal advice and mitigate future risks
As Fair Work continues to crack down on wage theft claims in 2021, it’s imperative as an employer to be proactive when it comes to wage theft. If an issue occurs, or to be proactive before it does, we recommend seeking legal advice from an employment law team to ensure that all areas of your workplace and employee management are compliant with the latest rules, regulations and modern awards.
At Optimum Legal, we work with you as an extension of your business to help make the process simple. Our team of employment lawyers are by your side every step of the way to answer any queries or concerns you may have regarding employee management or any other areas of employment law and HR advisory.
Book your free initial consultation here.