Are you at risk when paying employees a ‘flat rate’?

Individual Director fined for underpayment of wages

In a recent case in NSW, a company director was fined $39,000 for the underpayment of wages under the FairWork Act.  The company was found to have contravened the Fairwork Act a total of 23 times because they were paying employees a flat rate of pay that failed to include provisions and penalties for:

• casual loading
• broken shift allowances
• night work
• Saturday and Sunday work
• Public Holiday work
• Monday-Friday, Saturday, Sunday and Public Holiday overtime

While it is acceptable to pay employees a flat hourly rate, this rate must include provisions for all entitlements under the applicable Award.

The Judge accepted evidence that the director found it “difficult” to determine the appropriate rates for different classes of work performed by two groups of employees and decided to pay both a flat rate in the hope he would still meet Award obligations. It is the fact he chose to use a flat rate despite being unsure that resulted in the fines.

Other factors that pushed up the individuals fine included:

• the duration of underpayments – being more than six months
• the number of employees affected – over 40 staff
• the “not insignificant” total of underpayments (more than $35,500, and in the case of one employee, more than $9,700).

What can Small Business owners learn from this case?

This case may appear a deterrent to paying your employees a flat rate. However, there can be benefits to both the business and the employees if calculated correctly. The trick is not to wing it and hope for the best.

Before you decide that paying your employees a flat rate is the right option for your business, we recommend considering the following:

• Check which Award or Awards apply to your business. Tip: if you have employees working in different roles, they may be covered by different Awards which have different entitlements.
• Understand your employees work patterns. Will they work weekends, public holidays or outside of the ordinary span hours under the applicable Award? The hours of work will influence which penalty rates may apply.
• Does your flat rate of pay meet the Better Off Overall Test (BOOT)? Check that the hourly rate is the same or better than the employee would be entitled to under the applicable Award. That should include the minimum wage rates plus relevant Award entitlements and penalties.
• Purchasing a new business? If you are going to offer continuing employment to existing employees, check the rates of pay before the transfer of business.

If you are would like an audit of your current wages or assistance in paying employees a flat rate of pay, please contact the Strawberry Seed team on (03) 4216 5200 or book an obligation free chat to see how we can help.