An employer's guide to paying employees correctly

Updated: May 26


Working out the correct amount to pay an employee can be challenging in Australia’s complex industrial relations system. An employee’s pay rates are determined by whether an employee is covered by an award or agreement which sets out their minimum rate of pay and entitlements. Other employees are award free, which means they are entitled to the national minimum wage and entitlements under the National Employment Standards.


This article explains the difference between award and award free employees and how employers can make sure that they are paying their employees correctly.


Employees covered by an award


A modern award is a legal instrument which sets out the minimum terms and conditions of employment, such as minimum rates of pay, allowances, penalty rates and overtime. Modern awards apply to all employees who are covered by Australia’s national workplace relations system.


There are currently 121 modern awards which apply to employees working within particular industries and occupations, such as the construction industry, hospitality industry, retail industry and many office based roles.


To determine if an employee is covered by an award, an employer must consider the work performed by the employees and the industry the employer’s business operates in. The Fair Work Ombudsman website has a useful tool here which enables employers to find the right award which covers their employees, based on the job the employee performs and the industry they work in.


Employers who employ different types of employees may be covered by more than one award. For example, a construction company that employs tradespeople may have employees who are covered by the Building and Construction General On-site Award, while the company’s office-based employees may be covered by the Clerks – Private Sector Award.


What pay rate is my award employee entitled to?


Once an employer has found the correct award that applies to an employee, the next step is to determine an employee’s classification level within the award. The classification level will determine the minimum rate of pay which applies to an employee.


Schedule A of most modern awards sets out the classification levels applicable to employees covered by a particular award. Each classification level is accompanied by a description of the typical duties associated with the classification level. An employer should select the classification level which most closely matches the duties and responsibilities performed by the employee.


Once an employer has selected the relevant classification level applicable to an employee, it can determine the minimum rates payable to the employee by viewing the ‘Wages and Allowances’ clause of the award. The minimum rates payable to an employee may also depend on whether an employee is classified as an “adult” (usually 21 years of age or older) employee or a “junior” (usually under 21 years of age) employee and whether they are an apprentice.


If an employee is employed as a casual employee, they will usually receive a casual loading of 25% on top of the minimum hourly rate applicable to their classification level. This loading is paid to compensate a casual employee for not receiving paid leave entitlements and for a lack of continuity in employment that part time and full time employees enjoy.


If you are unsure whether to employ your employee as a permanent employee (i.e. as a full time or part time employee) or a casual employee, please refer to our article which discusses the difference between permanent and casual employees here.


What other employee entitlements do I need to be aware of as an employer?


Overtime

Modern awards contain an “ordinary hours of work” clause which sets out spread of hours and the number of hours employees can work before they are entitled to overtime. An employee’s ordinary hours of work will vary, depending on the award they are covered by. For example, the ordinary hours of an employee covered by the Building and Construction General On-site Award are 38 hours per week, between 6.00am and 7.00pm, Monday to Friday. In contrast, the ordinary hours of work for a retail worker covered by the General Retail Award vary from 7.00am to 9.00pm and includes both weekday and weekend work.


Each award sets out when overtime is payable and what the overtime rate is. This is usually expressed as a percentage of the minimum rate of pay which is payable to an employee. For example, a casual employee who is covered by the General Retail Industry Award and works on a Sunday is entitled to be paid 225% of the minimum hourly rate of pay.


What allowances an employee is entitled to


Each award has specific allowances which apply to employees, depending on the type of job they perform. These allowances include a tool allowance (for example, employees working in the construction industry), an industry allowance and a travel allowance.


Extra allowances can also apply if an employee is working overtime, such as the requirement for an employer to pay the employee a meal allowance.


Employers should review the “Allowances” clause in the applicable award to determine if their employees are eligible to receive any allowances. Allowances are usually paid in addition to an employee’s minimum rate of pay and can represent a significant financial benefit to an employee.


Employees covered by a registered agreement


A registered agreement is similar to a modern award in that it is a legal document which sets out the terms and conditions of employment for certain employees. A registered agreement is entered into between an employee or group of employees and one or more employers. It may contain terms and conditions which apply to a particular business or industry, such as employees working on a mining site and may provide more flexible working conditions than those contained in the applicable modern award.


An enterprise agreement cannot contain terms that are less favourable than what is contained in a modern award or the national minimum standard. An enterprise agreement must also be approved by the Fair Work Commission to ensure it complies with certain legal requirements.


A list of all agreements can be found on the Fair Work Commission website here.


Award and agreement free employees

Some employees are not covered by an award or registered agreement. This means they are considered “award free” employees. Award free employees are entitled to the national minimum wage, which is set by the Fair Work Commission and is usually reviewed on an annual basis.


Award free employees are also entitled to the National Employment Standards, which set out minimum entitlements including:


  • Maximum weekly hours which can be worked by an employee – 38 weekly hours of work, plus reasonable overtime

  • Personal and carer's leave, compassionate leave and unpaid family and domestic violence leave

  • The minimum notice period an employer must provide an employee when terminating their employment – this is calculated based on an employee’s length of service

  • Community service leave – for example jury duty or voluntary emergency activities

  • Long service leave

  • Public holidays – employees are entitled to a paid day off where the public holiday falls on a day they would normally work, except where an employer reasonably asks the employee to work

  • Requests for flexible working arrangements

  • Parental leave and related entitlements – maternity, paternity and adoption-related leave which is 12 months’ unpaid leave and a right to request an additional 12 months’ unpaid leave

  • Offers and requests to convert from casual employment to permanent employment

The terms and conditions of an award free employee’s employment may also be set out in their employment contract with their employer.


Key takeaways


Understanding if an employee is an award covered employee or an award free employee is crucial for employers. It will assist employers in determining whether they are paying their employees the minimum rates of pay and whether they are providing employees with their other legal entitlements.


An employer who underpays their employees can land themselves in serious legal trouble. Back paying employees can be expensive. An employer who does not pay their employees correctly can also face legal action from their employees and the Fair Work Ombudsman which can result in serious financial penalties.


If you need assistance in determining the correct award or registered agreement which applies your employees or have any questions about your employee’s entitlements, the employment team at Shand Taylor Lawyers is here to help.


John Sneddon, Director

(07) 3307 4504

jsneddon@shandtaylor.com.au


Ruby Nielsen, Senior Associate

(07) 3307 4551

rnielsen@shandtaylor.com.au


Emma Lewis, Lawyer

(07) 3307 4546

elewis@shandtaylor.com.au


Serena May, Law Graduate,

(07) 3307 4583

smay@shandtaylor.com.au





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