Managing people

Underpayment of wages and Fair Work legislation

This article summarises the process and provisions of the Fair Work Act 2009 in relation to alleged underpayments of wages by an employer.

This article summarises the process and provisions of the Fair Work Act 2009 in relation to alleged underpayments of wages.

Underpayment of wages refers to the situation where an employer fails to pay the minimum monetary amounts including wages, allowances or penalty rates prescribed by the applicable instrument or the contract of employment.

So what are an employer’s responsibilities under the Fair Work Act 2009, and what else should an employer know?

Underpayment of wages

The employer may be prosecuted to recover the underpaid amounts.

Where an employee has allegedly been underpaid, an employer may agree to correct the error, otherwise the employee can make a complaint to the relevant government authority.

This is a summary of the relevant law under the Fair Work Act, and the process that is initiated when a complaint is lodged by an employee with the Fair Work Ombudsman (FWO).

It should be noted that an employee can be represented in an underpayment of wages matter by the relevant union or their own legal representative.

This article does not apply to an employer operating in Western Australia whose business is unincorporated (e.g. a sole trader or partnership).

An employee located in that state and whose employer is not a national system employer can claim alleged underpayment of wages and/or entitlements under s83A of the WA Industrial Relations Act 1979, and should lodge their complaint with the WA Department of Commerce.

Statutory right to recover unpaid wages/NES entitlements

An employee is able to recover any underpayment of wages and/or entitlements under s539 of the Act. 

This section refers to an ‘application for an order in relation to contraventions of civil remedy provisions’. An employee can lodge a complaint with respect to an underpayment of wages and/or entitlements to the Fair Work Ombudsman. 

Employee action

An employee can take their own legal action to recover outstanding wages and/or entitlements, although most claims would be made to the FWO. If an employee is a member of a union, the employee may instruct their union to instigate an underpayment of wages claim directly to the relevant court. 

Time limit for an order for recovery

Under s545(5) of the Act a court must not make an order regarding an underpayment that relates to a period that is more than six years before the proceedings concerned commenced.

Claim for underpayment – FWO

An employee can make a complaint to the FWO if they believe the employer is not paying the correct minimum wages and conditions, such as annual leave or personal/carer’s leave. The matter is then referred to a workplace inspector who will investigate the complaint on the employee’s behalf. 

For employers and employees who were covered by the state system prior to 1 January 2010, the FWO can only investigate a complaint that occurred after this date.

Assisted Voluntary Resolution (AVR) – FWO

AVR is a process undertaken by the FWO to assist the employer and employer to find a mutually acceptable resolution, before commencing a full investigation.

The following is a short summary of information regarding the investigating of an employee complaint to FWO and the process undertaken once a complaint has been lodged. This information appears on the Fair Work Ombudsman website.

  • The FWO will assign a workplace inspector to the employee’s complaint and determine whether it is suitable for Assisted Voluntary Resolution (AVR).
  • If deemed suitable, the FWO contacts the employee and the employer within 10 working days, confirming the complaint, and that the matter will be progressed through the AVR process.
  • The AVR process operates to a strict timetable of 30 days from lodgment of the complaint.
  • Any issues that remain unresolved after the 30 days may be referred to a full investigation.

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Enforcement after investigation

The FWO identifies the possible outcomes or enforcement actions that may result from any investigation. These outcomes are:

  • the employer rectifying the contraventions
  • issuing a contravention letter — identifies the problems and asks the party to fix them within 14 days. (Where a contravention cannot be fixed, the contravention letter will contain what happens next.)
  • alternative dispute resolution — through methods such as mediation
  • a referral to small claims — gives an employee the chance to take their own action to recover any unpaid wages and/or entitlements
  • issuing a compliance notice — details the problems and what the party needs to do to fix them (e.g. the amount needed to be paid to the employee within 14 days. It also explains that the party can get a court to review the notice if the grounds for review are met)
  • issuing a letter of caution — a formal warning issued to an alleged breach by the employer in respect of a contravention where the FWA inspector has determined there is sufficient evidence for the FWO to start litigation but it is not in the public interest to do so
  • issuing a penalty infringement notice — similar to an on-the-spot fine and can be issued to a party who doesn’t comply with the Act covering record-keeping and pay slips
  • seeking an injunction — granted by a court to prevent, stop or remedy the effects of a contravention
  • entering into an enforceable undertaking — a written deed executed between the employer in breach and the FWO which contains an admission of the contraventions, agreement to perform specific actions to remedy the contraventions and a commitment to certain future compliance measures
  • litigation — the FWO may begin legal action against an employer (or the party the complaint is about) under the Act. In addition to seeking any underpayment owed to the employee, the FWO will usually seek penalties to be paid by the defendant (the party to whom the complaint is about).

Eligible court

Where a suspected underpayment of wages and/or entitlements occurs, an employee, or a Fair Work inspector acting on their behalf, may sue for recovery of the payment in the Federal Magistrates Court or the Federal Court of Australia, or an eligible state or territory court. 

The Fair Work Act defines an ‘eligible State or Territory court’ to mean one of the following:

  • a district, county or local court
  • a magistrates court
  • the Industrial Relations Court of South Australia
  • the Industrial Relations Court of New South Wales.

Penalties for underpayment of wages

The employer may face penalties of as much as $6600 per contravention for an individual and $33,000 per contravention for a body corporate.

Underpayment and offsetting

Where outstanding award entitlements are owing and the employer pays a sum to the employee for purposes other than satisfaction of the award, the employer cannot afterwards claim to have met award obligations. A full Federal Court case confirmed two principles in relation to the offsetting of award entitlements:

  1. If the employer and employee have agreed that the employer will make payments to the employee that are general (i.e. that they are not ‘earmarked’ as payment for a particular purpose or for a particular entitlement) then those payments can be applied to offset award entitlements; but
  2. If the employer has made payments to the employee that are specific in nature (i.e. that are ‘earmarked’ as being payments for a particular purpose or entitlement) then those payments can only be applied to award entitlements of a similar nature (i.e. there can only be offset of ‘like against like’).

Generally, any offsetting will be applied to amounts paid to each particular pay period in which the discrepancy occurred (e.g. weekly, fortnightly or monthly). 

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