A live underpayment test case reveals the compliance gap that upskilling programs can open. As employment lawyer and HR consultant Lisa Mannering FCPHR explains, most organisations don’t know this gap exists.

When Lisa Mannering FCPHR considers the raft of recent underpayment cases, she sees a growing problem of good intentions with unintended consequences. 

“Employers want to comply and they try to do the right thing for the most part,” she says, “but they’re operating in a complex system with a lack of consolidated support and education and a widening discretionary grey area.”

This complexity is where risk emerges, often through decisions that look entirely reasonable at the time: investing in staff, funding a qualification, encouraging someone to build a new skill. 

“What we see with these underpayment cases is a process gap with a legal risk,” Mannering says. “A gap in the process opens the door for that legal risk to occur.”

A test case now before a state employment tribunal shows how this plays out. 

A national pharmacy retail chain directed employees at several stores to obtain a formal community pharmacy qualification. It is then alleged to have had the employees take on higher-level duties without adjusting their pay.

The franchisees involved have denied the allegations, arguing that the affected employees were only ever promoted to a lower classification than the union claims and that the qualification had been pursued because of the offered government subsidy and not because of a role requirement. 

Yet the tribunal found a shortfall of roughly $60 a week per employee, and the union behind the case estimates the ruling could expose the company to more than $10 million in national backpay if the pattern holds across its network.

A test case like this, which involves multiple employees and seeks to clarify a particular issue, means once a tribunal makes a finding on how the classification should have applied, other affected employees can then point to that decision when arguing the same issue.

Duty-based vs competency based – where does discretion sit?

The case turns on a distinction that can catch many employers out: a duty-based classification structure versus a competency-based one. 

In a duty-based structure, the employer has discretion to classify and pay someone according to what they’re required to do. A competency-based structure doesn’t; once an employee holds an independently assessed qualification and uses it on the job, classification is less of a judgement call. 

“Anyone in a VET-sector industry where competencies are required for roles – trades, beauty, health for example – that’s where it becomes risky,” Mannering says.

“In this case the Tribunal explained that a contract alone isn’t sufficient to indicate the employee’s classification. It has to be what the Award requires.”

The intention behind the training also matters. Here, the employer had initiated it, received government funding, and offered an incentive to employees to complete it. Mandated training, financial incentives, and the qualification later being used on the job together established the higher classification as effectively being required, not optional. 

In this case, the incentive went beyond simply funding the course. Staff reportedly received $250 of the government subsidy directly, while the store received a separate, undisclosed amount for encouraging them to complete it – reinforcing the expectation that the qualification was required for the job.

“There’s a gap where L&D and potentially HR are pushing training opportunities for staff, and then that information … isn’t being passed back to payroll.” – Lisa Mannering FCPHR

How underpayment cases are evolving

Mannering separates this firmly from deliberate wage theft, criminalised since January 2025.

This is a different problem, one that a run of large underpayment cases across major Australian employers has already shown the shape of. 

“It’s less about intentional underpayments or people getting the standard hourly rate wrong,” Mannering says, “and more about the calculation of other entitlements being incorrect, or an incorrect classification that has resulted in a lower rate of pay.” 

Duties change, shifts change, a qualification gets used in practice long before the underlying paperwork is updated – and none of it shows up as a single, obvious error. 

Mannering says the systems many organisations rely on make this an easy trap to fall into.

Award compliance is already complex before competency frameworks enter the picture, she says, and guidance for employers hasn’t kept pace. 

“There’s a gap in the education and certainty available to employers and employees on how they know if they’re getting pay and classifications right, which means they often don’t know if it’s right until it’s wrong.” 

That gap runs both ways, Mannering says. “There isn’t a separate, simpler resource for employees than for employers – the onus is on both to navigate the Awards to work out what applies.”

It’s not simply a matter of knowing where to look, either. “Education on where the resources are is one thing, but knowing it’s definitely the right Award is another,” she says. 

For an employee, that can mean a completed qualification simply registers as a personal achievement rather than something that should trigger a pay review.

That ambiguity exists against a backdrop of active, growing enforcement. The Fair Work Ombudsman recovered $358 million for more than 249,000 underpaid workers in 2024-25, taking total back payments to more than $2 billion over five years, while anonymous tip-offs rose 50 per cent. 

Franchise structures and the underpayment risk HR needs to be watching

Decentralised structures add a layer employers can’t always see. 

A franchisor can be held responsible for a franchisee’s underpayments where it holds significant influence or control over the franchisee’s financial or operational affairs, even without direct knowledge of the specific breach.

This isn’t the first time training and pay have collided at the organisation in question: a compliance partnership with the Fair Work Ombudsman between 2016 and 2020 found that most employee complaints raised during that period related specifically to training payment issues. 

Waiting for a regulator or union to identify a classification problem means finding out about the organisation’s own exposure at the same time as everyone else. 

A more useful posture is assessing the level of visibility a head office has into franchisee payroll and classification practices, whether that visibility is real or assumed, and who owns the process of closing the gap before it becomes a legal risk. 

What closes the gap: building an underpayment-proof process

Mannering points to three habits worth building: “Know why training is happening and whether the Award treats the resulting competency as discretionary or required; be accountable about how any government training subsidy is applied, since public funding carries an expectation the skills will be used and paid for; and review classification on a trigger basis: it can’t just be yearly. As soon as that qualification has been completed and someone’s using it in their duties, the pay rate and classification flow-on should be adjusted.”

“There’s a gap where L&D and potentially HR are pushing training opportunities for staff, and then that information … isn’t being passed back to payroll,” Mannering says. 

“Accountability to get it right tends to sit with whoever holds financial oversight, often HR and payroll, even where L&D is driving the training.”

That accountability needs a practical starting point of a self-audit. Mannering points to three worthwhile checks: a collective audit of training and payroll records, a review of Awards to identify which competencies trigger a higher classification and where progression to a higher level may apply; and a checking of position descriptions against what the Award requires rather than the classification currently on file.

The real cost of a classification error

“The issue goes beyond underpayment of an hourly rate,” Mannering says. 

“It’s a full payroll audit for every hour worked that should have been classified at that higher rate, plus any flow-on costs, including penalty rates, overtime, allowances and superannuation.”

She points out that the exposure window is also longer than many assume: claims for underpaid wages under the Fair Work Act can be brought up to six years after the underpayment occurred, a limit that also applies under South Australia’s state industrial system, under which the case above is being heard. So the exposure isn’t confined to a current workforce; former employees within that window can also claim.

The lesson extends beyond this one case or sector and comes down to whether compliance is being treated as a set-and-forget exercise. 

“It’s all too easy to expect or assume that complex payroll systems will get it right. There needs to be a human in the loop to verify what’s happening is correct – a person, or team of people, with accountability for keeping an eye on compliance regularly.”

Disclaimer: This case remains before the South Australian Employment Tribunal at the time of publication, with a directions hearing on backpay and penalties scheduled for July 2026.

🧰 HR’s career resource toolkit

• Podcast: Hear more from Mannering in this episode of the ER/IR Unpacked podcast where she distils what the recent changes to pay in the NES review mean for Australian organisations
• Reading: Learn more about the 5 ways employers could accidentally underpay their employees in this article.
• Tools: For legally and peer-reviewed templates and guidelines you can implement in your organisation, AHRI members can visit the AHRI Assist library online. Not a member? Join today for access to practical resources to remain compliant.