Pay audits

In Australia, most job are covered under a modern award. A modern award is an industrial instrument that sets minimum pay rates and employment conditions for employees in particular industries or occupations.

Within each award are classifications (referred to as levels or grades) that apply to an employee based on the work they perform, their skills, qualifications, experience, and level of responsibility.

For example, a café owner determines that the Restaurant Award applies to their employees. They then need to assess the classification of three different roles: a junior casual food runner, a barista, and a qualified cook. All three may be covered by the Restaurant Award, but they’ll sit at different classification levels – each with different minimum pay rates and entitlements.

You also need to consider conditions relevant to the industry or occupation. Your employees may be entitled to allowances, loadings, penalty rates and overtime all specific to that industry. If any of these entitlements apply, you must pay these to the employee. Many employers flatten their pay rates by determining a rate that accommodates these entitlements.

To choose the right award and classification, you need to look at the kind of work your employee performs, their duties, and the nature of your business. Once you’ve identified the correct award, you then need to determine the employee’s classification level based on their duties, skills, experience and level of responsibility. You’re trying to determine the best fit.

The Fair Work Commission reviews the modern award base pay rates and entitlements annually, with changes taking effect in July. It’s a good idea to review employee pay rates at least once a year around this time. However, you should also review them whenever there is a change that could affect an employee’s classification, such as changes to their duties, award rates or workplace arrangements.

When reviewing pay rates, don’t just look at the hourly rate. Check that:

• the correct award still applies
• employees are classified correctly
• allowances, penalty rates and overtime are being applied correctly
• employees on flat rates or annualised salaries remain better off overall than they would be under the relevant award.