One underpaid rate, three years later

A rate that is a few dollars an hour short does not cost you a few dollars. It repeats every pay run, for every person hired onto the same contract, until someone finds it. Then it is owed for all of them, with superannuation on top and a penalty regime sitting behind it.

The arithmetic is the argument. Here it is.

The worked example

The figures below are illustrative and rounded, used to show how the error compounds. Award rates vary by classification and change on 1 July each year.

A business classifies a role one level below where the duties actually sit. The rate that follows the classification is $2 an hour short. Nobody notices, because the contract looks professional and the classification was a reasonable guess.

• One person, one year. 38 hours a week, 52 weeks. That is 1,976 hours, and $3,952 in underpaid wages.

• Superannuation on top. Superannuation is calculated on ordinary time earnings, so an underpaid wage produces an underpaid contribution. At 12%, that is a further $474 for the year.

• Three years, same person. Roughly $13,278 in wages and superannuation.

Now the contract gets reused. The template carrying the wrong classification is used for the next hire a year later, and again the year after. The first person has been there three years, the second two, the third one. Six person-years on the same wrong rate: approximately $26,500, before anything else is added.

None of that is a penalty. That is what was owed and not paid.

What sits behind it

The superannuation guarantee charge

Unpaid superannuation is not settled by paying the original amount late. The charge is a separate liability with three parts: the shortfall, nominal interest at 10% a year, and an administration component of $20 per employee per quarter. Unlike an ordinary contribution, it is not tax deductible. The shortfall is also calculated on salary and wages, a broader base than the ordinary time earnings used for a normal contribution, so the amount owing can exceed the figure above.

Penalties

Contraventions of the Fair Work Act 2009 (Cth) are calculated in penalty units. From 1 July 2026 a penalty unit is $364, up from $330, and serious contraventions attract substantially higher multiples.

Records

Employee records must be kept for seven years under the Fair Work Regulations 2009 (Cth). Where records are inadequate, an employer can face a reverse onus. It falls to the employer to disprove an alleged underpayment rather than to the employee to prove it.

The part people get wrong

"We'll fix it going forward."

Correcting the rate stops the error growing. It does not extinguish what has already accrued.

"It was an honest mistake."

Honest mistakes are common and they are still contraventions. Intent affects how a matter is dealt with. It does not make the money not owed.

"Our payroll system would have caught it."

Payroll systems apply the rate they are given. If the classification in the contract is wrong, the rate is wrong, and payroll executes it faithfully every fortnight.

"It's one person."

It is one person until the contract is used again. The most expensive feature of a classification error is that it gets stored in a template.

What it means for your contract

The error almost never happens at the pay rate. It happens one step earlier, at the classification, and every number downstream inherits it. That is why the check belongs in the contract, before it is issued, rather than in the pay run afterwards.

The questions worth asking of any employment contract are these:

• Which Award covers this role?

• Which classification level do the actual duties correspond to?

• Does the rate meet that level as at today's date?

• Does the same contract get used for anyone else?

Award rates change on 1 July every year. A contract that was correct when it was written stops being correct without anything happening to it.

Contractam checks the classification against the duties, and the rate against the Award in force now - on the contract, before it goes out.

The worked example is illustrative and not drawn from a real engagement.