Paying allowances to employees: what are employers responsible for?

Believe it or not– something as small as not paying a clothing allowance can contribute to a business paying hundreds of thousands of dollars in fines! In this article, we’ll discuss what happened, and explore everything you need to know about paying allowances, so you can be on top of your pay obligations.

So what happened?

It began in February 2019 when the FWO undertook court action against the operators of Hero Sushi outlets in Newcastle, Canberra, and the Gold Coast. This action was the culmination of an investigation that began in 2016 when the FWO was actively targeting fast food, retail, and café industries.

Among the many transgressions that occurred, Fair Work Inspectors identified that the employees were underpaid minimum hourly rates, casual loadings, penalty rates, overtime, and annual leave entitlements. Staff were paid rates as low as $12 an hour, more than $5 below the then minimum hourly rate. FWO inspectors also found several false documents that were created to conceal the underpayments.

Another element contributing to the widespread underpayment was the fact that employees were not paid their applicable clothing allowance. Something so trivial such as a clothing allowance actually significantly contributed to the enormity of the underpayment and breach of the modern award.

Underpayments come in many forms.

You may diligently check award rates, keep up with minimum wage increases and apply various penalties and loadings, but one thing businesses often fail to consider are allowances.

Most modern awards and enterprise agreements provide for allowances which are usually paid to employees who complete certain tasks, have a particular skill, or tool, or work in onerous or dangerous conditions.

Which allowances do I need to pay my employees?

Allowances are award-specific, meaning they are unique to each industry. If your business has employees in more than one award, you should ensure you’re familiar with the applicable allowances of each award.

Some common allowances found in many awards are:

• Leading hands allowance: this allowance is payable to employees who are in charge of other employees and is often calculated based on the number of individuals under their supervision.
• Laundry allowance: this allowance is payable to employees who are responsible for laundering their own uniforms or special clothing which is required by the employer to be worn while at work.
• Motor vehicle allowance: this allowance is payable to employees who use their private motor vehicle when performing work-related duties and is usually calculated on a per-kilometer basis.
• First aid allowance: this allowance is payable to employees who have first aid certification and are designated as first aid officers in the workplace.
• Meal allowance: this allowance is usually payable when an employee has worked overtime without sufficient notice.
• Tool allowance: this allowance is payable to employees who are required to provide their own tools or equipment.

Higher duties allowance

An allowance that often catches employers out is the ‘higher duties allowance’ which is found in many awards, including those for retail, children’s services, hospitality, and nursing. Citation HR has encountered many businesses, large and small, that were completely unaware of the existence of this provision and are now facing large underpayment claims.

The higher duties allowance is not a set dollar amount, but rather a principle – that an employee working at a higher classification than their own should be paid at the higher classification’s wage rate. Some awards apply time restrictions to this principle, restricting it to work performed over a certain number of hours or days before the higher duty allowance is payable. It’s imperative that businesses are aware of their requirement to pay a higher duty allowance and in what circumstances.

How much do I have to pay in allowances?

Some allowances are calculated as a percentage of the ‘standard rate’ which will be the minimum wage of a particular classification under the award. Where this is the case, the allowance amount payable will increase with the minimum wage on 1 July each year.

Other allowances are concrete figures, but don’t get complacent. These amounts are regularly adjusted to represent increases in the consumer price index, and businesses are often surprised to learn that the amount they must pay for a particular allowance has increased from one year to the next. This is why it’s important that you’re constantly on top of your award obligations.

What does this mean?

While failing to pay, or underpaying allowances will only result in a small underpayment, it’s an underpayment nonetheless and you may face significant penalties.

We recommend that you familiarise yourself with all applicable awards and the relevant allowances contained within them. Furthermore, regularly checking up-to-date versions of the award will ensure you are aware of all increases or changes.

How Citation HR can help?

We know that most business owners wouldn’t dream of intentionally committing wage theft or breaching workplace laws, mistakes can and do happen – this is where Citation HR can help you. Our HR software, combined with our team of workplace relations experts can complete a comprehensive HR compliance audit of your business that helps uncover issues before they become problems – and the best part – this service is included in our monthly, cost-effective subscription that’s designed to protect your business from costly risks.