Minimum wages: an overview of payment laws in Australia

Under review. This article is being updated for current rates and rules. Check the figures with the ATO or Fair Work before you rely on them.

Australia has a long-established system of minimum wage protection, enshrined in federal industrial relations legislation. Minimum wages are seen as essential to ensure fair and just working conditions for employees across the country.

Understanding the intricacies of these laws and their consequences is of utmost importance for employers and employees alike to avoid penalties, compensation orders and even imprisonment in severe cases of non-compliance.

In this article, we will delve into these minimum wage regulations in Australia, providing insights into the potential repercussions of not adhering to them, and drawing on real-world examples to illustrate the consequences of falling afoul of these laws.

What are the payment laws in Australia?

In Australia, payment laws are underpinned by a national piece of legislation known as the Fair Work Act 2009(Cth). The Act contains a swathe of industrial protections for employees across the country, which are enforced by the country’s workplace relations regulator, the Fair Work Ombudsman (FWO).

Two of the most important payment protections in Australia are the National Minimum Wage and minimum pay ratesin*modern awards*.

The National Minimum Wage (explained further below) is determined annually by Expert Panels of the Fair Work Commission (FWC), which is Australia’s national industrial relations tribunal. Each year, these panels determine written submissions from various organisations and individuals, conduct consultations, and commission research before the making of what is called a “national minimum wage order”.

Modern awards, however, outline the minimum wage rates, as well as other employment conditions such as working hours, leave entitlements, and overtime pay, for specific industries and occupations. They are regularly updated by the FWC to ensure that they remain relevant and fair for workers in different industries and occupations.

Understanding the legal requirements of both the National Minimum Wage and Modern Awards, plus a number of other industrial instruments and arrangements, is crucial for employers to ensure compliance with the minimum wage laws in Australia and avoid potential penalties or other legal consequences.

National Minimum Wage

The National Minimum Wage is a minimum wage that employees in Australia, regardless of who they work for, must at the very least be paid. Employees who are entitled to this wage are those employees who are not covered by a modern award or enterprise agreement (with certain exceptions listed below).

As outlined above, FWC Expert Panels review minimum wages and consult a variety of factors before a national minimum wage order is made. The order will apply from the first pay period from 1 July every year.

At the time of writing, the national minimum wage is $21.38 per hour,or $812.60 per 38 hour week (before tax). You can read the National Minimum Wage Order 2022 online here.

Note that the national minimum wage applies to employees notcovered by an award or enterprise agreement, other than:

• Junior employees
• Employees to whom a training arrangement applies
• Employees with a disability

Section 293 of the Fair Work Act 2009 (Cth) states that an employer must not contravene the terms of a national minimum wage order.

Case study: Company prosecuted for breaching minimum wage orders In 2017, the FWO secured penalties of $306,000 against a cleaning company in Western Australia for failing to pay the minimum wage to 6 employees. Five of these employees were paid nothing despite performing work, while one of them was short-changed approximately $13,000. A Federal Circuit Court judge found that the business and its director showed a “complete disregard” for their legal obligations, and that there had been an “absence of any expression of contrition, regret or acceptance of wrongdoing” from them. You can read the FWO’s media release here: https://www.fairwork.gov.au/newsroom/media-releases/2017-media-releases/october-2017/20171030-goldfinger-penalty-mr

You can read more about the obligations to pay minimum wages in Australia here: https://www.fairwork.gov.au/tools-and-resources/fact-sheets/minimum-workplace-entitlements/minimum-wages

Modern award rates

Modern Awards in Australia are ‘industrial instruments’ containing industry and occupation-specific entitlements to employees who are covered by them. This includes minimum terms and conditions of employment such as minimum wage rates. Modern Awards are created and regularly updated by the Fair Work Commission (FWC).

Modern Awards cover a wide range of industries and occupations, from hospitality and retail to healthcare and construction. They specify the minimum wage rates that employers must pay to their employees, based on factors such as job classification, experience, and location. Modern Awards also outline other important employment conditions, such as overtime pay, penalty rates, allowances, and leave entitlements, which can vary depending on the industry or occupation.

Sometimes, a modern award will not apply. For example, if a business has an enterprise agreement (explained below), then the terms of a modern award may not be relevant.

Section 45 of the Fair Work Act states that a person must not contravene a term of a modern award.

You can find a list of modern awards in Australia here: https://www.fairwork.gov.au/employment-conditions/awards/list-of-awards

Enterprise agreements

Enterprise agreements in Australia are legally binding agreements made between employers and employees, or their representatives, which outline the terms and conditions of employment within a particular business or enterprise. Enterprise agreements are typically negotiated at the enterprise level and can cover a wide range of employment matters, including wages, working hours, leave entitlements, and other employment conditions.

Enterprise agreements are intended to provide flexibility and customisation in employment arrangements, allowing employers and employees to mutually agree on terms and conditions that suit their specific needs, while still complying with minimum standards set by the law. Enterprise agreements must be approved by the FWC to ensure that they meet the requirements of the Fair Work Act and that employees are better off overall compared to the relevant modern award.

Once approved, enterprise agreements have the force of law and bind both employers and employees. They generally have a nominal term of up to four years, after which they must be renegotiated.

These agreements can offer benefits for both employers and employees, as they provide an opportunity for mutual agreement on employment conditions that may be more tailored to the specific needs and circumstances of a particular business or industry. However, it is crucial for an employer to ensure that the correct steps have been taken when making an enterprise agreement, and that employees are not ‘worse off’ in comparison to minimum standards set by the law or other applicable industrial instruments.

Case study: Train employees bargain for pay rise in enterprise agreement In early 2023, rail employees in NSW reached an agreement with the state government over terms and conditions in a new enterprise agreement. Over 10,000 employees took part in a ballot to vote for the agreement, resulting in a 93% ‘Yes’ vote. The agreement provided a pay rise of 2.53 per cent in the first year, followed by a 3.03 per cent pay rise in the second year. The agreement also provides employees with expanded access to parental leave, carer’s leave and support for employees who are experiencing domestic violence. This agreement followed nearly a year of industrial action, which included actions such as switching off Opal machines, refusing to operate trains that were manufactured outside of Australia, and engaging in “go slows” (i.e. reducing the maximum speed of trains). You can read a news article about the deal here: https://www.abc.net.au/news/2023-01-30/nsw-rail-workers-agree-to-new-deal-with-government/101907162

You can read about enterprise agreements and other registered agreements here: https://www.fairwork.gov.au/employment-conditions/agreements

Penalties and allowances

In modern awards and enterprise agreements, there will often be certain penalties to be paid on top of minimum rates.

These penalties will be paid when employees work:

• Overtime hours (often referred to as overtime rates)
• On public holidays (often referred to as public holiday pay)
• On early morning or late night shifts (often called shift allowances)
• On weekends (usually referred to as Saturday and Sunday rates).

An employee may also be entitled to allowances on top of their base rates when:

• They perform certain jobs
• They work in challenging conditions
• They use specific equipment
• They travel to and from particular work sites
• They are required to wear a uniform

For example, in the Black Coal Mining Industry Award 2020, employees may be entitled to an allowance of $2.15 per shift when engaging in “dirty work”. This is defined as “where an employee has to handle machinery, equipment, appliances or gear of any description which is covered with oil or grease”.

You can read more about penalty rates here: https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/penalty-rates

Minimum wages for junior employees

Employees below the age of 21 are considered junior employees. If they are covered by a modern award or an enterprise agreement, then they will usually be subject to different minimum wage rates compared to adult employees.

The minimum wages for junior employees are typically calculated based on a percentage of the national minimum wage or the applicable award or agreement. These rates are specifically designed to ensure that younger employees receive appropriate compensation for their work, taking into account their age and level of experience.

If there are no junior rates in the relevant modern award or enterprise agreement, junior employees are to be paid the same as their adult counterparts.

When junior employees work with alcohol

Juniors may be required to serve and sell alcohol as part of their employment. Two common modern awards will be the:

• Hospitality Industry (General) Award
• Restaurant Industry Award

Junior employees covered by these awards who serve or sell alcohol must be paid the adult rate for their classification. This is irrespective of their age. These rates will apply in a number of circumstances, such as when they pour alcohol, take an order for alcohol or serve alcohol to seated customer in a restaurant.

You can find further information on junior pay rates here: https://www.fairwork.gov.au/pay-and-wages/minimum-wages/junior-pay-rates

Minimum wages for apprentices and trainees

Trainees and apprentices are employees on formal training contracts. Different rates apply to these employees.

Apprentices

These employees will usually include:

• Adult apprentices (employees who are 21 years or older when starting their apprenticeship)
• School-based apprentices(apprentices who still are still in high school when completing their apprenticeship)

An employee will only be paid this rate if they have signed a formal training contract with their employer. The training also has to be registered and recognised by a training authority in their state or territory, such as TAFE.

Trainees

Trainees will typically be entitled to rates in their registered agreement, which could include a modern award or an enterprise agreement.

You can find further information on pay rates to apprentices and trainees here: https://www.fairwork.gov.au/pay-and-wages/minimum-wages/apprentice-and-trainee-pay-rates

Contracts of employment

Contracts of employment in Australia are legally binding agreements between employers and employees that outline the terms and conditions of employment. They are typically individual agreements that negotiated and agreed upon between the employer and the employee at the commencement of employment.

Contracts of employment can cover a wide range of employment matters, including but not limited to job duties, remuneration, working hours, leave entitlements, and other terms and conditions of employment. They can be written or verbal, although it is generally recommended to have written contracts to avoid any misunderstandings or disputes.

Contracts of employment can be tailored to reflect the specific needs and requirements of the employer and the employee, as long as they comply with the relevant laws and regulations. Employers are still required, when entering into written contractual arrangements, to comply with minimum employment standards set by the Fair Work Act, including but not limited to, the National Employment Standards (NES), which outline the minimum entitlements for employees in Australia.

Recent changes to fair work legislation in Australia have direct impact on the way contracts of employment are drafted. For example, employment contracts can no longer have pay secrecy clauses (i.e. clauses that prohibit an employee from sharing information about their pay to others). There is also now a general prohibition on employers entering into fixed-term contract with employees for a term that extends more than two years.

Case study: Damages award for breaching payment rates in contract of employment In 2014, a finance consultant made a claim against his ex-employer, Stratton Finance, on a number of grounds. Importantly, one of the grounds was an underpayment of commission payments he was owed in his employment contract. The Federal Circuit Court found that the employee was entitled to 40% of all gross commissions received by his employer, less introduction fees. The failure to pay these amounts, the court found, was a breach of his employment agreement. After an appeal, the Federal Court ordered the employer to pay the former employee an amount of $117,764.49 on account of unpaid commission. See full decision: Webb v Stratton Finance Pty Ltd [2013] FCCA 2197 (appeal allowed in part: Stratton Finance Pty Limited v Webb [2014] FCAFC 110 and Stratton Finance Pty Limited v Webb (No 2) [2014] FCAFC 161).

You can read more about employment contracts here: https://www.fairwork.gov.au/employment-conditions/contracts

Superannuation

Superannuation in Australia serves as a mandatory retirement savings system that requires employers to contribute a percentage of their employees’ earnings into a superannuation account on their behalf. This system aims to ensure that individuals have accumulated enough funds to support their financial needs during retirement.

Superannuation is a long-term investment, with contributions being invested in various assets to generate returns over time. The funds in a superannuation account are generally not accessible until an individual reaches their preservation age, currently between ages 55 and 60 years.

Employers make a Superannuation Guarantee payment (abbreviated as SG) into the accounts of their employees. At the time of writing, the SG amount is 10.5%of an employee’s ordinary time earnings. The SG is usually part of an employee’s remuneration, and is paid on top of an employee’s wages or salary.

You can read more about whether a business is required to pay superannuation on the Australian Tax Office’s website here: https://www.ato.gov.au/business/super-for-employers/work-out-if-you-have-to-pay-super/

Can payroll be held responsible for underpayments?

Yes, payroll can be held legally responsible for underpaying employees under the Fair Work Act. Under this law, third party accountants may be held liable as accessories for underpayments committed by their clients. This is due to the provisions outlined in section 550 of the Act, which establishes that a “person” who is “involved” in a contravention can also be held liable.

Section 550 of the Fair Work Act defines the term “involved” broadly, and it includes a person who has aided, abetted, counselled, or procured the contravention. This means that even if a third party accountant did not directly commit the underpayment themselves, they can still be held liable if they have played a role in assisting or facilitating the contravention.

In other words, if an accountant knowingly or recklessly assists a company underpay its employees or fails to take steps to prevent underpayments, they could potentially be held accountable as accessories to the contravention. This is in line with the principle that accountability for workplace compliance extends beyond just the direct employer, and also includes those who provide support or services that contribute to the contravention.

Depending on the precise circumstances, payroll might be liable might include providing advice, preparing payroll records, or processing payments on behalf of their clients, knowing or having reason to believe that the payments were not compliant with the Act.

It’s important to note that section 550 of the Fair Work Act is aimed at ensuring that all parties involved in the employment relationship, including third-party service providers, take responsibility for compliance with the Act and uphold the rights and entitlements of employees. This helps to deter underpayment practices and promotes fair and compliant employment practices in Australia. It also underscores the importance of due diligence and proactive compliance measures by third-party accountants and payroll companies when providing services to their clients.

Case study: Accountants held responsible for underpayments The FWO commenced proceedings against a third party accounting firm, EZY Accounting, for its involvement in underpaying employees of a Japanese fast food chain. This food company had engaged EZY Accounting to assist them in rectifying payroll contraventions. Despite EZY’s engagement, underpayments continued. The FWO claimed before the Federal Circuit Court that EZY had ‘actual knowledge’ of the Japanese fast food company’s contraventions, was an intentional participant, and either/or aided, abetted or was knowledge concerned in or a party to those contraventions. EZY was fined $115,706.25 but, on appeal, the fine was reduced to $51,330. See Fair Work Ombudsman v Blue Impression Pty Ltd [2017] FCCA 810 (appeal in EZY Accounting 123 Pty Ltd v Fair Work Ombudsman [2018] FCAFC 134).

Where to find more information about payment obligations in Australia

A business can obtain advice on how to pay their employees correctly from various sources, including:

• Fair Work Ombudsman (FWO): the primary government agency responsible for enforcing workplace laws in Australia. The FWO provides a wealth of information and resources on their website, including pay guides, tools, and calculators to help businesses understand and comply with their obligations in relation to employee pay. They also offer a free helpline that businesses can call to seek advice and assistance on employment-related matters, including pay rates and other entitlements.
• Registered Tax Agents / Accountants: Businesses can also seek advice from registered tax agents or accountants who are knowledgeable about taxation and employment laws in Australia. These professionals can provide guidance on payroll compliance, including correct payment of wages, taxes, and other entitlements.
• Industry Associations / Unions: Many industry associations and trade unions offer advice and resources related to employment and payroll matters. These organisations often have experts who are knowledgeable about industry-specific pay rates, awards, and other relevant regulations.
• Legal Advisors: Businesses can also seek advice from legal advisors or employment law specialists who can provide expert guidance on employee pay matters. These professionals can interpret complex employment laws, provide guidance on compliance, and assist with any legal disputes or claims related to employee pay.

Information in this article may be incomplete or outdated and should never be relied upon for legal or tax advice. Always speak to a legal or tax professional when making decisions with respect to the payment of your employees.

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