What happens when you don’t pay penalty rates

‘How much am I expected to pay employees?’

The Fair Work Commission’s decision to reduce Sunday and public holiday penalty rates across hospitality, retail and pharmacy sectors has served as a timely reminder to small business owners grappling with the complexity of pay entitlements across 122 modern awards.

Whether time-poor, unaware of their obligations, acting under false information, or simply getting it wrong – an alarming number of employers are fronting up to the Fair Work Ombudsman for underpaying staff. The issue of underpayments is also running hot in the media, with MasterChef Judge and chef George Calombaris, allegedly underpaying staff a total of $2.6 million.

Where does the penalty rates decision sit within this volatile environment? And what does it mean to smaller employers? While the decision has sparked a public debate, with politicians, workers and business owners expressing a range of views, questions of implementation have yet to be answered. Until the ‘how’ and ‘when’ of all rate changes are confirmed by the Federal Government, the status quo stands.

Quite simply, it means making sure employees are paid what they are entitled to now. “A fatal mistake made by employers for decades is employers think that because they pay over an award in terms of the base hourly rates, that they don’t have to pay in accordance with the award during public holidays,” says Joe Murphy, Director, Workplace Relations of Australian Business Lawyers & Advisors. “This is a mistake, as often the hourly rates won’t be as much as time-and-a-half, double-time or double-time-and-a-half.”

It is essential, particularly in the lead up to a public holiday period, that businesses assess their requirements and ensure they remain compliant. “It is rare for an employer not to have some award-covered employees,” Murphy acknowledges, stressing the importance for small business owners to familiarise themselves with the awards their staff fall under as made by the Fair Work Commission.

Murphy states that while no one industry is the main perpetrator of issues regarding penalty rates, it is small businesses that often make the mistakes, however recent media reports suggest the errors on the part of big business are more systemic and in some cases deliberate.

“Many small businesses make the assumption that because they pay their staff a particular hourly rate, they can continue to pay them that rate for all purposes under that award.” This, Murphy advises, is often an incorrect assumption.

And, what about overpayment? “Overpayment is a big error employers make,” Murphy says. Unfortunately for business owners, overpayments are difficult and costly to recover. Another reason to ensure you are paying your employees correctly. “The Fair Work Act prohibits deductions, except in special circumstances” says Murphy.

While changes to penalty rates are imminent, it is paramount that businesses focus on their legal requirements now, rather than adopting any changes early. If not, they risk facing a court and being penalised thousands of dollars.