When was the last time you checked the classification of your employees?
Not the classification sitting in your payroll system. Not the classification someone selected when the employee commenced. And not simply the classification you have always used because “that's how we've always done it.”
When was the last time you compared the employee's actual role and responsibilities against the applicable industrial instrument?
If the answer is “I'm not sure”, you may have a payroll risk sitting in your system that you haven't identified yet.
When we talk about payroll compliance, the conversation often jumps straight to rates, overtime, allowances, penalties, leave and superannuation. But there is an important question that needs to come first:
Are we paying the employee under the correct industrial instrument and at the correct classification?
If the answer is no, everything that follows can be wrong.The Fair Work Ombudsman explains that an employee's minimum pay rate is determined by the applicable award and classification. Classification levels can be based on factors including duties, skills, competence, qualifications, experience and the level of supervision or responsibility involved. That means getting the classification right isn't an administrative exercise. It is a fundamental part of getting payroll right.
One of the best places to start is the employee's employment documentation. The employment contract should clearly identify the position the employee has been employed to perform and, where applicable, the industrial instrument and classification that applies.
But don't stop there.
The employment letter should be considered alongside the employee's current position description or job description.
This is why classification reviews should not be treated as a one off exercise that happens when someone starts employment. Consider an employee who begins in a relatively straightforward role. Over several years, they take on additional responsibilities, train other employees, become responsible for more complex processes and start resolving issues with less supervision. There may be no formal promotion. Their job title may remain exactly the same and their payroll record may continue to show the original classification.
But their role has evolved.
Those changes should prompt the employer to ask whether the employee’s classification is still appropriate. This is particularly important when employees take on additional duties or responsibilities that could potentially move them into a higher classification. A regular review of position descriptions and actual duties can help identify these changes before they become a compliance issue.
This is something I experienced personally in a previous workplace. The business operated under the Manufacturing Award, and employees working in the manufacturing rooms had historically been classified at Level 14. That classification had been in place for years and had effectively become accepted as the classification for those employees. When Fair Work became involved, the roles and duties were reviewed against the classification structure. It was determined that the employees should have been classified at Level 13, rather than Level 14.
The lesson for me wasn’t simply that the classification had been wrong. It was that the classification had been accepted for so long that nobody had stopped to properly challenge it. The business had inherited a classification decision and continued using it. That is an easy thing to do in payroll. A classification is entered into the system when an employee starts, and as long as nothing obvious changes, it can remain there for years.
The applicable industrial instrument and the employee’s actual role are what need to be considered.
This is another area where payroll professionals need to be careful. It can be tempting to open a Modern Award, read through the classification structure and find a level that appears to describe your employee. It is easy to think, “That sounds like the role, so that’s the classification we’ll use.” However, classification can be much more complicated than that. Depending on the Award, the classification structure may consider skills, competency, qualifications, experience, supervision, responsibility and the nature of the work being performed. It is also important to understand the Award’s coverage provisions and whether the Award actually applies to the employee and the business.
A job title on its own isn’t enough. Neither is finding one sentence in an Award that appears to match the employee’s duties. The better approach is to consider the employee’s role as a whole, including the duties they actually perform and the requirements of the classification. It can also be useful to compare the classification above and below the one being considered. This is where expert advice can be particularly valuable. Sometimes the answer is obvious. Other times, an employee’s role sits between two classifications and requires a much more detailed assessment.
A good classification review shouldn’t happen only when Fair Work arrives or when someone raises a payroll concern. It can be incorporated into the normal employee lifecycle. When an employee commences, confirm the applicable industrial instrument, classification and position description. When an employee is promoted or their responsibilities change, review the position description and consider whether the classification is still appropriate.
Performance and remuneration reviews can also provide a useful opportunity to ask whether the employee’s role has evolved since their classification was originally determined.
It is also worth reviewing classifications when an industrial instrument changes or when the business introduces significant changes to its structure, processes or roles.
This is particularly important when undertaking a payroll compliance review. Imagine you are reviewing an employee’s payroll and comparing their payments against the Award. You check their ordinary rate, overtime, penalties, allowances and other entitlements and identify what appears to be an underpayment.Then you discover the employee was incorrectly classified from the beginning. Suddenly, the entire review needs to be reconsidered.
This is why classification should be one of the first things reviewed in a payroll compliance project. Before asking whether the employee has been paid the correct rate, you need to establish what the correct rate actually is.
If the starting classification is wrong, the rest of the compliance review may be built on the wrong foundation.
Classification can be complex, particularly when an employee’s role sits between two classification levels or when it isn’t immediately obvious which industrial instrument applies. It is important to carefully consider the coverage of the relevant Award and then assess the employee’s actual duties against the classification structure. This isn’t always something that can be resolved by searching the Award for a job title or finding a duty that appears to match. Sometimes you need someone with experience in Award interpretation to step back and look at the whole role. We recommend engaging with an employment lawyer to assist with this process.
Athena Koelmeyer Principal of Workplace Law says “It is eternally frustrating for our clients who have simply popped a position title into a “find your award” search and then relied on that result to be told on payroll review or audit that the award identified doesn’t apply to their business and therefore their starting position has always been wrong”.
Athena says starting at the very beginning is warranted as organisations, grow, shrink or change focus “A proper review of your industrial instrument coverage is important from time to time, especially as your business evolves – for example if you still sell the same products, but no longer manufacture or repair them here in Australia – are you still in the “manufacturing industry”? Similarly, if you still sell products online, but no longer have a bricks and mortar store – are you still in the “retail industry”?”
“Of course”, Athena says “only once you identify your industrial instrument can you correctly classify your people within the classification structure and know what your base line really is”.
Classification isn’t just a field in your payroll system. It is the foundation your payroll compliance is built on.