Even well-resourced organisations with in-house payroll, IR and legal teams are getting caught out by award compliance. An HR leader unpacks the everyday mistakes behind many accidental underpayments.

I was on a call with a client this morning on this very topic, before I even sat down to write this, which tells you everything about how live this issue is.

The business has been operating for less than six months. They’re not a household name, they don’t have deep pockets and they certainly didn’t set out to do the wrong thing. But an audit we’ve just completed for them has found they’ve misapplied their award in a number of areas, and they’re now looking at back payments for around 20 employees.

Their situation is complicated by a FIFO roster – seven days on, seven days off. That’s a condensed roster arrangement, and their award has specific rules about when overtime kicks in that don’t match the assumptions they’d built their pay structure on.

They’re also using a quasi-annualised wage arrangement, which some awards allow, but only if you comply with a strict set of conditions. None of this was deliberate. It was a poor understanding of the award that applies to them in a system that’s incredibly complex to navigate (we know many countries deem Australia’s industrial relations system as one of the most complex in the world).

I raise this client not because it’s unusual, but because it’s completely ordinary. And that’s really the point of this article: the underpayment stories that make headlines are the extreme end of a problem that’s far more common, far more mundane and far more avoidable than most of us would like to admit.

Why underpayments happen in well-resourced organisations

Australia’s modern awards have no real equivalent overseas. Most comparable countries run on national employment legislation plus enterprise-level agreements. We have that too, but we layer 122 detailed, classification-specific modern awards on top, each with its own nuances.

You can be an expert in awards generally and still get tripped up by the specific clauses in one you don’t work with often. That complexity is exactly why we’ve seen large organisations with industrial relations teams, payroll specialists and access to employment lawyers still get it wrong. Look at the retail cases that reshaped this space over the past couple of years.

A common historical practice was to pay full-time managers a salary well above the award and assume that covered whatever additional hours the role demanded. The problem is that being paid above award doesn’t exempt you from the award. You still need to run the better off overall test (BOOT) – comparing what someone actually works and earns against their award entitlements – to check the salary genuinely compensates for the hours worked.

An $80,000 award rate covered by a $100,000 salary sounds generous until someone is regularly doing 80-hour weeks.

The more recent development, arising from the Woolworths and Coles cases, is that the BOOT reconciliation now needs to be done within each pay period, not averaged out over a longer stretch.

If someone works an extra 14 hours of overtime this fortnight, you can’t offset the against a quieter fortnight next month. That’s a significant shift for any organisation relying on annualised salaries or set-off clauses, and I’d encourage every HR and payroll leader to check whether their award, systems and contracts actually support pay-period-level reconciliation, because most practices I see don’t.

“An $80,000 award rate covered by a $100,000 salary sounds generous until someone is regularly doing 80-hour weeks.”

The everyday mistakes behind most underpayments

In my experience, a handful of patterns account for most of what we find in award and pay audits:

Assuming “above award” means “not award covered.”

It doesn’t. Around 90 per cent of Australian employees are award covered regardless of how much they’re paid. Even if you’re paying someone $20,000 above their award rate, you may still owe them annual leave loading and overtime, unless that’s been correctly built into an annualised salary or flexibility arrangement.

Incorrect classifications, and classifications that never progress.

Many awards include pay points within a classification level, and if you’re not actively tracking service or hours to move people through those points, you’ll fall behind without realising it.

Getting advice from the wrong source.

Accountants are rarely award experts, and a general commercial lawyer isn’t the same as an employment lawyer. If it’s a new or unfamiliar award, get advice from someone who lives in that detail every day.

Flexibility agreements and annualised wages done badly.

Individual flexibility agreements (IFAs) exist in every award, but they must be written exactly as the award requires, and you must be able to demonstrate the BOOT for that specific employee. Some awards allow for annualised wage arrangements and need a defined outer limit on hours and a genuine reconciliation against time and wages records – some awards require this quarterly, most annually – to confirm the salary actually covered what was worked.

Rostering complexity.

Organisations with varied shift patterns and multiple penalty and overtime triggers are especially exposed to misinterpretation. Getting rostering right isn’t just a compliance safeguard, it’s a genuine cost opportunity if you match rosters to actual business needs.

Weak record keeping.

We worked on a matter in aged care where staff weren’t reliably taking or recording meal breaks. When a dispute arose, the organisation couldn’t produce the records to defend its position that the breaks had been taken as required.

If a break isn’t taken and you can’t evidence it, you may be exposed to an overtime rate for that time, and to a broader duty of care issue around workload and fatigue.

A few newer pressures are compounding all of this. Wage theft has been criminalised in recent years, raising the stakes considerably. And then there’s Payday super, which is largely a cash flow and administrative change for payroll rather than a strategic HR issue, but it needs to be executed correctly and on time.

What differentiates the employers who catch it early

The organisations that stay ahead of this treat pay compliance as part of their overall governance and risk framework, the same way they treat financial or safety risk, not as a standalone payroll problem.

In practice that means:

• Investing in the award knowledge of HR, payroll and people leaders
• Building award interpretation into your systems rather than relying on manual judgement
• Running a proper award and pay audit on a regular basis to confirm classifications, rates and BOOT outcomes
• Ensuring employment contracts genuinely reflect your arrangements (IFAs, annualised salaries, rostering practices)
• Maintaining robust time and wages records
• Scheduling an annual compliance audit, including a fresh look at annualised salary outer limits.

I’d also gently push back on something I hear often in this profession: a discomfort with numbers. Employee relations and pay compliance require the same commercial rigour we apply to culture and leadership work. We need to understand the business drivers and the numbers behind them, not just the people side.

What if it’s already gone wrong?

If you do find an underpayment, how you respond matters as much as the fix itself.

The organisations that rebuild trust are the ones that are upfront. They acknowledge the issue, commit to remediate it (often through a formal undertaking) and communicate honestly with their people about what happened and what’s being done to address it. Trying to minimise or bury it almost always causes more damage than the original error.

Ultimately, getting pay right is a hygiene factor. It doesn’t win you engagement points, but getting it wrong will undo everything else you’re doing on culture and leadership. People come to work to be paid – correctly, and that has to be the foundation everything else is built on.

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Claire Harrison FCPHR is an HR consultant and experienced HR leader. She is the Principal Consultant and Managing Director at Harrisons.