Time to review your Award classifications

With the 1 July Award pay rate increase fast approaching, now is the time to review your Award classifications.

Awards are legal documents outlining the minimum pay rates and conditions of employment for workers. There are currently over 120 Awards which apply to employees covered by the Fair Work Act 2009.

If a worker’s employment is Award or Registered Agreement covered, their rate of pay is determined by the classification that they fall within under the applicable instrument. Classifications – typically worded within the Award as “Levels” – are descriptions of positions and roles, usually with reference to duties performed, experience and professional qualifications held and number of direct reports.

Employers have an obligation to ensure they apply the correct Award classification to the role that each worker is performing. This is key to ensuring correct remuneration of employees in accordance with the applicable Award.

Sometimes it will be a relatively straightforward process to determine Award coverage and classification level. Other times, it can be more complex, particularly where an employee performs a job which may be covered by multiple Awards. This will usually require consideration of which type of work constitutes the employee’s “major and substantial employment”.

Failing to comply with the correct Award classification can lead to miscalculations in employees’ pay, overtime and other entitlements. When such miscalculations affect a significant number of employees – possibly over a duration of several years – the result can be a liability for back-pay…not to mention the potential legal penalties and reputational risk to a business.

In response to recent widespread and systematic underpayment of wages and other entitlements across the Australian employment landscape, the Fair Work Ombudsman (FWO) has become increasingly active, both in direct response to employee complaints and in random audit activities. In 2020–21, the FWO issued 2,025 Compliance Notices to employers, compared to 220 the previous year. The Regulator also initiated 41% more litigations in 2021, compared to the same period in 2019–20.

Your best risk management strategy? Be informed and proactive. Start by reviewing the classification structure in the relevant Award for each employee to ensure you are paying the correct rate for the person’s duties and document this accordingly…in either the individual’s Contract of Employment or elsewhere within their Employee File. Classifications will change as the employee gains additional skills and assumes greater responsibility within your business (or moves into a different role) so it’s an exercise we recommend you undertake at least annually.

Need help to start? Give Bare Bones Consulting a call. Simple.