Common mistakes
You should now know how to identify the correct industrial instrument (if any), how to classify your employees, and what you need to pay them. However, mistakes can still happen. The following is a list of examples where issues commonly arise.
Classifying an employee under the incorrect industrial instrument
Many terms and conditions of employment are set by an industrial instrument. The two most common types of industrial instruments are “awards” and “agreements”. Where no industrial instrument applies to an employee, they are referred to as “award/agreement free” employees.
It is important to know which industrial instrument applies to your business, and each of your employees, as this directly affects what your employees have to be paid.
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If your business operates in a specific industry, most of your employees will be covered by the relevant industry award. If any of your remaining employees fall outside of the classification definitions of that award, it is rare for a different industry award to apply unless you are in more than one industry. Instead you should consider whether an occupational award applies, or whether they will be award/agreement-free.
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when purchasing a business be sure that you understand what industrial instrument covers the employees. Caution should be exercised to ensure that you are aware of any enterprise agreements that the previous owner negotiated with employees will continue to apply.
Not applying the correct rules based on whether someone is full-time, part-time, or casual
There are three different types of employment in Australia: full-time, part-time, and casual.
Many awards and agreements provide different rules for each type of employment, however there are some common elements that can be observed.
Full-time employees
Full-time employees work 38 hours per week on average, but may work additional hours provided this would be reasonable in the circumstances. Some of the factors that impact whether this would be reasonable, include:
- the employee’s rate of pay;
- the nature of the employee’s position; and
- any family or carer’s responsibilities of the employee.
You will usually still need to pay employees for 38 hours of work even if you do not require them to work these hours.
Full-time employees are also entitled to paid leave entitlements, such as annual leave and sick leave, and redundancy pay if their position is retrenched.
Part-time employees
Part-time employees are very similar to full-time employees, except they work less than 38 hours per week. They receive a pro rata amount of paid leave entitlements based on their hours of work compared to full-time employees and are also usually entitled to redundancy pay.
It is very common for awards and agreements to specify how part-time employees may be rostered, and the steps that must be taken to increase their number of rostered hours. These are sometimes very specific, and not following the rules may result in overtime being required to be paid.
Casual employees
Unlike full-time and part-time employees, a casual employee has no guaranteed number of hours of work, nor do they receive any paid leave entitlements. A casual employee also is not entitled to redundancy pay if their position is no longer required.
In exchange, casual employees are usually paid at a higher rate than full-time or part-time employees. This is commonly referred to as a “casual loading”. Casual loading is usually an additional 25%, however you should always check your award or agreement as this may vary.
Casual employees are usually free to accept or refuse as many shifts as they like.
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If your award or agreement requires you to record any increases to a part-time employee’s hours of work in writing, even if the employee agrees, make sure you have a system in place to record this for up to 7 years. If the employee ever changes their mind and you do not have this record, you will almost always be required to backpay overtime to the employee.
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If your business needs flexibility and adaptability regarding the amount of hours that employees work then usually casual employment will be more suitable. However, if you need employees to guarantee their availability to work the same hours every week and you need routine and predictability then full-time or part-time employment will be appropriate.
Payment of wages best practices
To ensure that you are following payment of wages best practices please access the resources below.
Salary not compensating an employee for the hours they actually work
Instead of paying your part-time or full-time employees by the hour, you may decide to pay them an annualised salary so they receive the same amount each pay period across the year.
Some awards and agreements have special rules about how these salaries need to be calculated. Ensure that you are across these rules before commencing such an arrangement.
Even if you pay an employee a salary, they cannot be paid any less than what they would have received had they been paid by the hour.
What about full-time employees working reasonable additional hours?
For full-time employees, even if they work more than 38 hours per week and these additional hours are reasonable, they must still be paid for all time actually worked.
Most awards and agreements require overtime to be paid once an employee works more than 38 hours per week on average. If you pay your employees a salary, and expect that they will often need to work more than 38 hours per week, you should make sure that it includes sufficient compensation for the employees working these additional hours.
How often do I need to review an annualised salary?
If your employees are paid an annualised salary in accordance with an award or an agreement, these may specify how often the salary needs to be reviewed to make sure the employee has been compensated for the hours they actually worked during the period.
In many cases this is every 12 months, or if the employee leaves the business, the time of their departure.
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If the employee’s award or agreement is silent, or they are award/agreement free, it is still best practice to review these salaries at least every 12 months to ensure that the salary is sufficient.
Calculating an employee's salary
The following example is for illustrative purposes, and should not be relied upon when calculating or reviewing an employee’s salary.
Kassandra, Wei and Andi are employed as full-time Sales Assistants at Major’s Grocery Store. To make it easier to keep track of his wage costs, Major decides to pay all of the store’s full-time Sales Assistants the same salary of $50,000 per annum, which works out to $961.54 per week.
Kassandra has to pick up her children from childcare every afternoon, and drive them to sport on the weekends. She never works overtime, or on weekends or public holidays.
Wei attends university in addition to work. He usually works three days during the week, and then every weekend. He occasionally works on public holidays, and some overtime when he has to open or close the store.
Andi is eager to be promoted to Assistant Store Manager, and often works long hours to help out Major when other employees call in sick or during stocktake. Andi often works late at night, on weekends and public holidays.
Let's compare the minimum weekly wages earned by our employees, and how much difference there is between this figure and their weekly salaries.
Click on each employee to find out more.
