How to avoid staff underpayments

Employment law in Australia is complex. Being across the legalities of correctly paying employees is essential to ensure your team members are happy, you avoid hefty audits and investigations due to underpayments, and you can sleep soundly at night!

Underpayments in the hair and beauty industry can mainly be attributed to the following:

  • Annual salaries,
  • Misclassification of employee levels; and
  • Inaccurate time and record keeping.

Annual salaries

Employers often choose to pay their staff members an annual salary as opposed to the relevant hourly rates of pay under the applicable award. However they often forget to revisit the employee’s salary on a yearly basis, or consolidate the salary with any overtime worked by the employee. 

Businesses must ensure that an employee’s salary is at least equal to their minimum entitlements under the Hair and Beauty Industry Award (or any other applicable award) to avoid underpayments. This means an employee cannot be ‘worse off’ receiving an annual salary than they would have, had they been paid an hourly rate pursuant to the applicable award.

Often employers believe an annual salary leaves an employee better off. However, employees often work overtime and public holidays, which entitles them to higher rates of pay. This is often not factored into the employee’s annual salary and can inadvertently result in an underpayment.

Misclassification of employees

Another common factor that results in underpayments for staff members in businesses is that they have not classified their employees’ levels correctly. Under the Hair and Beauty Award, there are six employee levels.

Each classification level has a particular base ordinary rate of pay rate, which means that if an employer has classified an individual as a level 1 employee, when they are in fact a level 3 employee under the Award, there will be an inadvertent underpayment.

Employers should regularly assess the day-to-day duties a staff member is performing in consideration of the employee levels as defined in the Hair and Beauty Award.

Time and record-keeping

Salon owners and managers are constantly working in a busy environment and staff members are often required to stay back to assist. This can result in an entitlement to penalty rates, and additional or overtime payments. It is therefore vital for a business to ensure that they are complying with all their record keeping obligations in the Fair Work Act in keeping a record of the hours that their employee’s work and ensuring any additional payments or overtime are paid.

The Fair Work Act requires employees to keep records of including but not limited to:

  • Overtime;
  • Hours of work;
  • Pay records;
  • Superannuation contributions;
  • Annual wage arrangements;
  • Leave; and
  • Averaging hours.

With wage theft now becoming criminalised in Victoria and Queensland, seeking legal advice in relation to your business specifically, is essential. Some memberships with the AHC or ABIC include unlimited access to HR and legal advice tailored to your business, and with their support and guidance, you’ll get a full eight hours every night!

Keep up to date with the latest in employment and recruitment in the hair and beauty industries at the HeadHunter blog.