Paying employees and keeping records

Once a new employee has started, a small business must take all reasonable steps to ensure that the employee is being paid the appropriate amount for the work they are doing. Small businesses also need to ensure that they keep accurate and current records relating to an employee’s pay, leave, tax and superannuation. Mistakes in this area can cost small businesses a significant amount of money when they may least be able to pay it. The consequences of that can be catastrophic for the business.

1. Paying employees

An employee is entitled to and must be paid at least the “minimum pay rate” for the work they perform. An employee’s minimum pay rate can come from one of the following instruments:

· an award;

· an enterprise agreement; or

· another registered agreement (such as a collective agreement).

Remember that the applicable rate of pay for your staff requires you to identify the employee’s “classification” under the award or enterprise agreement. The classifications are usually based on skills, work duties and seniority. For example, a “Level 1” employee under a particular award will be entitled to a lower rate of pay than a “Level 2” employee.

If none of these instruments applies to a worker employed by a business, the “national minimum wage” will cover that employee.

2. Additional payments

Employees covered by awards and enterprise agreements are also likely to be entitled to additional monetary sums, such as penalty rates, overtime, allowance and loadings, which are higher pay rates and other amounts that employees need to be paid for working particular hours or days, or undertaking particular types of duties. Pay requirements can be calculated using the Fair Work Ombudsman’s (FWO) Pay Calculator.

Employees must be paid for all the time they have worked. This includes:

· attending training and meetings;

· opening and closing the business; and

· working trial shifts (noting some unpaid trials can be lawful).

Work may be unpaid in very limited circumstances. Those limited circumstances can be found on the FWO’s Unpaid work site.

3. Frequency of payment

How often you should be paying your employees can be found in the relevant award or agreement. It will usually be weekly or fortnightly and must be at least monthly.

A payslip should be provided to your employees within one working day of being paid and should include the amount paid and any tax withheld. The FWO’s paying wages site is a useful guide for understanding your obligations regarding pay.

4. Deducting from employee’s pay

For the most part, an employer should not be making deductions from an employee’s pay. You are only permitted to make a deduction if:

· the employee agrees in writing (and it is mainly for their benefit);

· it is allowed by a law, court order, or the Fair Work Commission (FWC); or

· it is allowed under the employee’s award or registered agreement.

It is important to understand that if you accidentally overpay your employee, you should not make a deduction from their next pay. Rather, you should discuss the situation with your employee and draft a written agreement, specifying the reason for the overpayment and the amount to be paid back.

5. Changes to awards and pay

The step is to keep up to date with changes to awards and pay rates. Minimum pay rates in awards and the national minimum wage are reviewed around 1 July every year.

Additionally, look out for when a junior employee has their birthday, an apprentice or trainee reaches a milestone, or when an employee’s role changes. This is because the employee’s minimum rate of pay may increase when they get older or if their skill classification changes.

6. Keeping records

Consistent, accurate record-keeping is an essential (and mandatory) part of running a small business. It can protect you from potential fines and time in court.

It is a legal requirement that employers keep employee records as follows:

· time and wages records for a period of seven years; and

· tax and superannuation records for a period of five years.

The records must be accessible to a Fair Work Inspector (FWI), legible and in English. They cannot be altered unless you are correcting an error, or the records are false or misleading. The FWO provides useful guidance on how to manage these obligations.

7. What information must be recorded?

The information you keep for each employee will vary based on their type of employment. Extra records must be kept for employees on “annualised salaries”. Generally, an employer must keep records of:

· the employer’s and employee’s name;

· the employer’s ABN (if any).

· the commencement date of work;

· the employee’s employment type, such as full-time, part time or casual.

It is important to record an employee’s:

· pay rate;

· hours of work (including penalty rates or loading);

· gross and net amounts paid; and

· any deductions or incentive-based payments;

8. Leave entitlement records

It is crucial to keep current records of each employee’s leave entitlements. If leave can be paid out, keep a copy of the stipulating agreement and a record of the payment made, the date of the payment and the amount of leave cashed out.

If the employee is under an award, keep a copy of the agreement expressing the amount of leave taken and the day it begins. It is much more difficult to do this years later when there may be a disagreement about leave that has been taken or is owed.

An employer may also wish to direct employees to take annual leave during an office shutdown or if the employee has an excess accrual of annual leave. Whether this is allowed will depend on the terms of the employee’s award, registered agreement or the Fair Work Act. The FWO’s site contains useful guidance on this point.

9. Superannuation records

Importantly, an employer is also obliged to record superannuation contributions made on behalf of the employee, specifying the amount paid, pay period, date(s) paid, name of the super fund and reason it was paid. You do not need to record a defined benefit interest paid into a defined benefit fund.

10. Flexible working arrangements

If your employee is under an individual flexibility agreement under an award or registered agreement, make sure to keep a copy of the written agreement and any notice or agreement to terminate the flexibility agreement. If there is a guarantee of annual earnings, keep records of the guarantee and the date it was cancelled (where applicable).

11. Termination

If an employee’s employment is terminated, ensure you record how the employment was terminated, whether notice was provided and if so the amount, and the name of the person who terminated the employment.

12. Providing records on transfer of business

In a transfer of business, make sure that the records of transferring employees are passed on to the new employer. The new employer is also required to seek employment records from the old employer for any transferring employees hired within three months of the business sale.

13. Employment records are confidential

Employee records should be kept confidential and should only be made available to the employer, payroll staff, the employee and authorised individuals. FWI’s can also access records to determine an employee’s entitlements and whether they were paid correctly.

Practising consistent, accurate record-keeping is an essential part of running a small business and can protect you from potential fines, disputes and time in court.

With thanks to Nick Noonan, employment law specialist, of Henry William Lawyers for his assistance in preparing this article.