The most common penalty rate mistake employers make

If you’re one of the thousands of employers that pay over award wages, you probably think you’ve got Easter payroll covered. Not so fast; you may need to check your employment contracts.

Penalty rates are a hot topic in the lead up to Easter, with Good Friday and Easter Monday attracting the higher than usual rates for many employees rostered on to work those days.

Surprisingly, employers who pay over the award wages as a matter of course are amongst those most likely to attract the attention of the Fair Work Ombudsman for underpaying staff on public holidays.

“Employers often think that because they pay over an award in terms of the base hourly rates, they don’t have to pay in accordance with the award during public holidays,” says Joe Murphy, Director, Australian Business Lawyers & Advisors. “This can be a mistake because often the hourly rates won’t be as much as time and a half, double time, or double time and a half.”

Whether you need to pay more in relation to penalty rates may depend on the wording of your employment contract and the total amount you pay the employee for the relevant pay period, adds Murphy.

“If the contract specifically says ‘we are paying you over-award, and that is paid to set off against paying penalty rates’, it can safeguard the business against the award,” he says. “However, if you work out what an employee will make when working full-time, then calculate what they would get under the award including the additional money they would have received at the public holiday rate, and it turns out they are being paid less than the award, then the company is breaching compliant practice.”

Murphy warns against making amendments to employment contracts, without first seeking your employee’s agreement. Not only won’t the contract be binding, but it won’t be seen to be fair to everyone.

“Where you do implement new contracts, it is important that you do so in a way that ensures that not only is the contract is binding but that doesn’t sour the relationship you have with your employees,” he says.