Where’s the risk in offering higher wages to attract more staff?

By Alex Honner
Senior Risk Analyst
15 February 2022

Most employers are no stranger to the current staffing shortages faced by nearly all industries across Australia – with key industries such as hospitality, tourism, health and food supply taking the hardest hit.

Workers are not returning to the workforce or have found jobs elsewhere, and less workers are able to travel from overseas. In addition, more employees are testing positive or being identified as close contacts, as COVID cases continue to rise in all states, with the scarcity of rapid antigen tests further delaying diagnosis. This is heightened by a surge in demand as consumers, particularly in New South Wales and Victoria, enjoy more freedoms in a “post-pandemic” world.

Currently, there are over 14,000 job vacancies advertised on Seek in the hospitality and tourism industries alone. This shortage has led to businesses poaching employees from nearby venues and offering significantly higher wages to attract high quality and experienced staff. A flat rate of $30 might sound appealing to an employee usually paid an ordinary award rate in the low $20s, however employers and employees need to be aware that this exposes them to a serious risk of wage underpayment.

“Quantaco are no strangers to complexity in award payments, we manage payroll for several thousand hospitality workers and the recent award update required us to review over 21,000 potential pay rates to ensure our client’s staff received the correct salary. The complexity in awards and the link between base rates and penalty rates for example, needs to be very carefully considered when thinking of offering higher salaries to attract new staff.” says Scott Barber, Chief Commercial Officer Quantaco.

If award penalties such as weekend and overtime rates are not being incorporated into wage calculations, then employees may no longer be receiving their minimum entitlements.

So is it legal? Most modern awards enable employers and existing employees to vary the application of certain monetary terms by mutual agreement, including overtime, penalty rates and allowances.

However, there is one crucial condition – any agreement must result in the employee being better off overall. This requires employers to challenge any existing annualised salary or flat rate arrangements made with employees on a regular basis, to ensure that this condition continues to be met as award wages and entitlements increase over time. For example, the Hospitality Industry (General) Award increased by a further 2.5% on 1 November 2021, taking the permanent Level one ordinary hourly rate up to $20.92.

Underpayment of staff can result in significant reputational damage, loss of staff, reduced service levels and quality, and in some cases, harsh fines from the Fair Work Ombudsman.

PKF know that workplace and payroll compliance, particularly in the industries covered by modern awards, is complex. Our dedicated National workplace team is one of the largest of its kind in Australia and has the depth of skill to respond. The team consists of a diverse range of subject matter experts, including: industrial law, audit and forensic, data and business intelligence, and taxation. Get in touch with your local adviser today.