Getting payroll right in Australia is harder than it looks. With more than 122 modern awards, each filled with rules on base rates, overtime, penalties and allowances, compliance is a constant challenge.
To navigate this, employers may commonly choose to pay above award, assuming higher wages will cover differences and prevent underpayments.
However, this blanket approach does not necessarily safeguard against errors or ensure that employees have received all their entitlements. Without the right records, structures and reconciliations, employees can still miss out on entitlements.
With penalties for underpayments rising and awards evolving, compliance demands ongoing attention, not a “set and forget” approach.
This blog explores the hidden risks of paying above award and how organisations can build confidence in paying employees correctly under modern awards.
Why paying above award is not enough
Awards include penalty rates, overtime, allowances, and other loadings that must be applied in full. Without clear contracts, reliable records, and ongoing reconciliations, employees whose base rates are above award minimums may still be underpaid, leaving organisations exposed to backpay and penalties.
This is because:
- Entitlements still apply: A bartender $3 above the minimum may still be underpaid if weekend or late-night penalties are missed.
- Awards keep changing: A margin above award rates can vanish with annual increases if pay is not updated.
- Offsets are not automatic: Extra pay does not absorb overtime or allowances unless supported by a lawful set off clause, flexibility agreement, or annualised salary arrangement with reconciliations.
- Classification errors: A tradesperson performing Level 5 duties but paid at Level 3 may earn above Level 3 but below their actual entitlement.
- Enterprise agreements still apply: Assuming the wrong award or overlooking an EA with higher entitlements will inevitably result in underpayments.
Moving beyond “above award” pay
To move beyond this mindset, employers need to demonstrate not just that employees are paid above award, but that they are paid correctly with reference to the rules of the award or agreement that applies to them.
This is where records matter. Reliable documentation of classifications, start and finish times, breaks, and how pay was calculated will provide the evidence that higher rates are meeting an employer’s award obligations. Without evidence, even generous pay packets can collapse under audit or investigation.
To avoid the risks of relying solely on above award pay, organisations need to work together across functions. Payroll compliance is a shared responsibility, and success comes from coordinated effort to:
- Confirm instrument coverage and classifications: a common source of error best tackled by Payroll and HR, with an external advisor to validate tricky cases.
- Reconcile actual vs required pay: including penalties, overtime, and allowances. This might involve Payroll and Finance and others working together to verify accuracy.
- Have clear contracts: specifying what an employee’s above award rates are designed to cover, and with robust set off clauses. This requires alignment between Legal and HR to make sure terms are lawful and defensible.
- Implement regular audits: Conduct payroll audits frequently enough to catch issues early and adapt to legislative or organisational changes. Read more on how often should organisations audit payroll.
Building confidence in payroll compliance
Paying above award wages may seem like a safeguard, but it does not eliminate the risk of underpayment. Compliance with modern awards is not a blanket approach. It requires accurate classifications, clear documentation, thorough reconciliations, and regular audits.
The good news is that technology can make moving beyond paying above awards rates easier. Yellow Canary supports employers with AI-powered, automated payroll audits that automate audits, flag variances early, surface the root cause of risks, and make compliance a continuous process rather than a reactive one.
By pairing good intent with robust processes and independent auditing, organisations can reduce risk, strengthen employee trust, and build lasting confidence in award compliance.
