Circular 2020/2: Correction of underpayment of wages

Commonwealth employers have obligations under the Fair Work Act 2009 to ensure their employees are paid correctly. In the event of underpayment, agencies need to make corrections as soon possible and ensure any systems errors contributing to the underpayment are rectified.

Purpose

1. This circular is a reminder to agencies:
   • of their legal obligations to ensure employees are paid their entitlements correctly;
   • to make corrections as soon as possible if an error is detected; and
   • to regularly review their payroll processes to ensure they are up to date and accurate.
2. Where Commonwealth employers are not vigilant in ensuring payroll processes are up to date and accurate, they risk inadvertently underpaying employees. The Fair Work Ombudsman has the authority to investigate ongoing underpayments and impose penalties on employers.

Awareness

3. Agencies must take a proactive approach to ensuring employees are paid correctly. This includes a range of provisions including salary, allowances, superannuation, PAYG, and voluntary or mandated deductions.
4. Most underpayments are unintentional and are due to:
   • the incorrect application of industrial instruments;
   • inadequate payroll systems and coding errors;
   • inadequate resourcing and / or training of payroll staff; and/or
   • a lack of regular checking of specific conditions such as overtime hours.
5. Many Commonwealth agencies do not process their own employees’ payroll, either using a shared service provider or outsourcing to a third party. Such arrangements do not remove an agency’s responsibility to ensure employees are paid correctly.
6. Penalties may be imposed under the Fair Work Act 2009 for underpayment of wages.  

Required Actions

7. Agencies should audit their payroll procedures, monitor payroll information and liaise regularly with their payroll provider to ensure they are operating correctly. Agencies also need to ensure that their payroll provider:
   •  understands the operation of the relevant industrial instruments; and
   • is informed in a timely manner of changes to:
     • terms and conditions in industrial instruments;
     • individual employee circumstances that impact on terms and conditions; and
     • machinery of government changes.
8. If an agency is unsure of the interpretation or application of an entitlement or its application, it may be prudent to seek legal advice.
9. It is strongly recommended that agencies set a regular schedule for reviewing and auditing payroll processes  

Obligations

10. Where an agency becomes aware of a serious or significant error it is obligated to report it to the Fair Work Ombudsman. Small over/underpayments to employees can be dealt with internally, but serious errors or those that occur over a significant period of time, such as for superannuation, must be reported. Reports to the Fair Work Ombudsman should be made directly to the FWO’s Corporate Assurance team via email, corporateassurance@fwo.gov.au.
11. Once an error has been reported, an agency should conduct a review of its systems and correct anything that have contributed to the issue. Agencies need to act quickly to rectify errors and continue to consult with affected employees.
12. A step by step guide published by the Fair Work Ombudsman is available at www.fairwork.gov.au.

Further information

13. In addition to having compliance responsibilities, the Fair Work Ombudsman also provides employer support. Its website contains a range of helpful tools, resources and guides: www.fairwork.gov.au.  

For further information or questions relating to your obligations, you may contact the Fair Work Ombudsman’s Corporate Assurance team via email - CorporateAssurance@fwo.gov.au.