When you consider that Employment Awards have been in place in Australia since the early 1900s, it’s interesting to note that there are so many misconceptions around Modern Award compliance – indeed, it is still one of the most misunderstood aspects of employment law.
Many business owners believe that setting a fair hourly rate and ‘paying above the award’ is enough to stay compliant. Another common assumption is that managers or employees in a professional role are not covered by an award, or that paying an annual salary means employees are ‘award exempt.’ A significant number of small business owners also still believe they don’t need to know Awards in any detail. Unfortunately, these misconceptions can lead to costly mistakes, including underpayments, employee disputes and even legal penalties.
Many of these beliefs are lingering from a time when the award system could be described as ‘chaotic,’ however, in 2009 the Fair Work Act introduced Modern Awards, consolidating thousands of State and federal awards into a simplified system.
Now, non-compliance is not an option. Businesses cannot claim ignorance and risk damage to their reputation or exposing themselves to Fair Work penalties. For many businesses, these risks could be financially crippling. That’s why understanding the common pitfalls in Award compliance is the first step in protecting your business.
Award Compliance Is Critical
Modern Awards set the minimum pay rates and conditions for employees across different industries and roles. They cover wages, allowances, penalty rates, overtime and rules for breaks and rostering. They do not cover the minimum Annual Leave, Personal Leave and Public Holidays rules set out by the National Employment Standards, but they do cover industry specific conditions such as annual leave provisions in the Nurses Award, public holiday entitlements in the Hospitality Award, inclement weather conditions in the Building and Construction Award or annualised wage agreements in the Clerks Award, and many such conditions, which are often overlooked.
Failing to comply doesn’t just hurt your employees – it places your business at risk of:
- Financial penalties and back-pay obligations
- Legal action from employees or unions
- Damage to your reputation and staff morale
Many small businesses rely on professional HR Consultancy services in Perth to manage these complexities. Why? Because seemingly minor errors in interpreting an Award can lead to significant financial exposure.
So, what are the common pitfalls to look out for?
- Choosing the Wrong Award or Classification Level
With 121 Modern Awards and multiple classification levels, determining the correct one for each role is not always straightforward. Misclassification often results in incorrect pay rates and entitlements, leaving businesses vulnerable to underpayment claims.
- Overlooking Award Coverage
Some employers assume their employees are not covered by an Award, especially for managerial or specialist roles. This assumption can be a costly mistake. Always verify Award coverage based on job duties, not just job titles. It’s always best to check with an HR professional if you are unsure.
- Incorrect Pay Rates
Modern Award pay rates are reviewed annually by the Fair Work Commission. Using outdated rates, or, for example, assuming every award defines Junior employees the same way, even unintentionally, could lead to significant back-pay obligations. Partnering with Small Business HR Management Services ensures your pay structures are always up to date.
- Ignoring Award Conditions
Some business owners believe that if they ‘pay above the award’ then they are compliant. This is not necessarily the case, especially if there are penalty rates, overtime, allowances, and leave entitlements to consider. Even if someone is paid over the award rate, you can’t simply ignore Award conditions unless you complete a ‘better off overall test’ (BOOT) and compare it to the relevant Modern Award. And BOOT should be well documented and must meet Award conditions. Some commonly missed conditions include:
- Junior definitions and rates
- Specific definitions and conditions for part time employees
- Spread of working hours and shift worker definitions
- Industry specific leave provisions
- Industry specific redundancy provisions
- Industry specific superannuation entitlements
- And the list goes on…
- Inadequate Rostering or Breaks
Failing to provide proper rest breaks or adhere to rostering requirements breaches Award obligations and can have an impact on employee wellbeing. These errors often arise when businesses lack clear scheduling systems and rely on manual time and attendance processes, which can make compliance obligations difficult.
- Relying Too Heavily on Annual Salaries
Annual salaries seem convenient, but they don’t exempt you from Award compliance. Employers must regularly check, using BOOT, that employees on annual salaries remain better off than they would under the Award. Some Awards contain specific terms for Annualised Salaries, which rely on good time and attendance tools. Without careful record-keeping and checking, it’s easy to fall into non-compliance.
- Incomplete Timesheets or Pay Records
Fair Work requires businesses to keep accurate time and wage records. Missing timesheets or incomplete pay records make it nearly impossible to defend against underpayment claims, even if errors are accidental. It should be noted that payroll compliance goes beyond Award compliance and is an area that must be meticulously managed.
- Poor Communication and Lack of Training
Many compliance issues arise because managers and staff simply don’t understand Award requirements – but be warned – ignorance is no defence. Without clear employment contracts, policies and regular training, mistakes are inevitable.
What to do when you’re unsure of your obligations
Navigating Modern Awards doesn’t need to feel like walking a tightrope. For many businesses of all sizes, outsourcing compliance tasks to professionals is often the safest and most cost-effective approach.
Small Businesses are engaging HR support Australia-wide, and a good HR consultancy practice can help you:
- Correctly interpret and apply the right Awards.
- Ensure pay rates and conditions remain compliant.
- Maintain proper records and implement strong processes.
- Train your team to prevent costly errors.
It’s fair to say that Modern Award compliance is complex and ever-changing but getting it wrong can have a huge impact on businesses. SMEs and even large corporations in Australia (some recently in the news) have been subjected to employee pay disputes. Avoid these common pitfalls by staying informed – or better yet, partner with professionals who can manage compliance for you.
By working with HR Consultancy professionals, you’ll reduce legal risks and free up time to focus on growing your business – not on compliance headaches.
If you’re looking for an expert HR Consultancy in Perth, our team can help you navigate Award compliance with confidence.
Ready to take the stress out of HR? Contact us today and discover how we can support your business with reliable, expert HR solutions.
