We’ve all seen headlines of businesses underpaying employees as a result of breaches to the Fair Work Act. In financial year 2020/2021 alone, the FWO recovered $148,374,054 for 69,735 workers. The number of employers being taken to court for underpayment of wages is also currently on the rise. As well as financial damage it can also cause reputational damage.
These cases highlight just how important it is for a business to understand their legislative obligation to ensuring they are paying their workers correctly. This is where a remuneration structure can assist your business.
A remuneration structure is a documented framework that can be utilised in a business as a reference guide to determine what to pay employees. By having a documented framework in place for assessing classifications and outlining the rates of pay, it can reduce the likelihood of any potential underpayment claims and ensure an employer’s compliance.
What should be included in a remuneration structure?
- What award/agreements will cover your business (more than one award can apply to a business)
- A look into what roles you currently/may employ under your business
- Assessing the classification that each role falls under
- Minimum award rates and minimum salaries
- A list of any additional payments that are applicable
Determining what agreement or award covers your business
The remuneration structure should include what award(s) or agreement covers your business. Awards and agreements set out the minimum terms and conditions of employment.
Given that there are over 120 modern awards, determining which award(s) covers your business can be a daunting but crucial task.
Most employees will be covered by an industry specific award (i.e. Restaurant Industry Award, Broadcasting, Recorded Entertainment and Cinemas Award, Building and Construction (on-site) Award) or an Occupation based award (i.e. Professional Employees Award, Clerks – Private Sector Award, Nurses award). You may also be covered by more than one award.
Fair work have a guide in determining which award(s) may cover your business. You can find the complete list of awards on the Fair Work website.
Whilst an award is determined by Fair Work covering an entire industry or occupation, an agreement is negotiated and must go through a process of being approved by Fair Work. If your business is covered by an agreement then, generally it would not be covered by an award.
There could also be the possibility that an employee is not covered by an award or agreement and instead they are award free. If so, the National Minimum Wage, National employment standards and other legislation relevant to the employment will form the terms and conditions of employment.
Job roles and their classification
In your remuneration structure you should list out all the roles you currently have or may have in your business. A review of the employees role should also be undertaken to determine what classification they should be assigned.
Employees covered by an award or agreement must have a classification level attached to them. The minimum rate of pay for employees who are employed under an award or enterprise agreement is determined based on their classification, which is why it is paramount to classify employees correctly.
Classifications sets out the criteria to determine an employee’s level. The criteria can be based on the employee’s role and responsibilities, qualifications, experience, skills, and job knowledge.
The classification is where you can also determine if an employee is award free – If an employee is more senior than the highest classification set out.
Minimum award rates, Minimum Salary and other applicable payments
After determining the award and classification of each role you can then determine the minimum award rate. By having the minimum award rates and minimum salary in the remuneration structure, it allows a business to understand the amount they can pay an employee.
In addition to rates of pay, there are other payments that may be applicable in paying an employee such as allowances. Allowances are made to employees based on any expenses incurred during their work or may relate to the role itself (e.g. working in unpleasant and hazardous conditions). Some examples of allowances are: laundry allowance, meal allowance, first aid allowance, industry of employment (e.g. building and construction). By including this in the remuneration structure it will allow a business to see in a snapshot what other payments will need to be passed on to employees.
Benefits of following a remuneration structure
The remuneration structure should be used as a reference guide to understand what to pay employees. It will outline the minimum amount you can pay, this can, in turn remove the potential for any underpayment claims. It can assist by ensuring consistency and reducing pay disparity by classifying staff at the same level who perform the same role, have the same skills, experience, and qualification.
It will also ensure a business’s compliance – some modern awards contain an obligation for a business to inform employees of their classification.
Finally, it can also assist in outlining the structure and clear pathway if an employee were to step into a promotion and clearly define what is needed for an employee to get promoted to a higher level and how much to pay.
Other articles that may interest you
Overpayments and underpayments how to avoid them and what to do when they occur
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Disclaimer
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.