As an NFP leader, how confident are you that the people delivering your organisation’s mission are being paid what they’re entitled to?

A case like this one last week where SA-based Uniting Communities committed to back-paying more than $2.6 million to about 1,500 current and former employees – is one of a number affecting NFP employers in recent years, including Relationships Australia Queensland, Aruma, Wellways, Australian Red Cross and many more.

It’s part of a broader problem that affects hundreds of employers and around 250,000 underpaid Australian workers each year.

In many cases the underpayments occur over years, or sometimes more than a decade, and are often the result of administrative and classification errors –  including staff being placed under the wrong awards, enterprise agreements being misapplied, or employees not receiving full entitlements like overtime, penalty rates, leave and superannuation.

Beyond the financial cost, cases like this highlight the reputational risks of underpaying staff.

​​NFPs are particularly vulnerable to these risks because they operate on a foundation of trust and goodwill, often with limited administrative resources. Even unintentional underpayments can damage public perception.

Recognising the early warning signs and taking corrective action can help protect both staff and organisational integrity.

What counts as underpayment in Australia?

Underpayment can occur in lots of ways and isn’t just about minimum wages. Many NFP staff members are paid in accordance with an employment contract or a Modern Award (award), which covers the pay and conditions to which they are entitled to by law,  including:

• Superannuation
• Allowances
• Overtime payments
• Penalty rates
• Leave payments
• Leave loading

Seemingly small issues, such as inaccurately recording overtime, can quickly lead to unintentional underpayment.

Why underpayment is a real risk for NFPs 

There are 122 Modern Awards in Australia that set out employers’ obligations regarding pay and conditions, including SCHADS, the Social, Community, Home Care and Disability Services Award, the Aged Care Award, Children’s Services Award, and the Health Services Award.

Warwick Ryan, a specialist in employment law and workplace relations and partner at law firm Hicksons | Hunt & Hunt, told us that as far as underpayment goes, “the most common problem, and by far the most potentially catastrophic for employers, is for someone to be underpaid as against the award.”

He added that underpayment can happen faster than you might think, and recalls a situation in which an NFP client of his had employed students to deliver a particular service on an intermittent basis in 30-minute intervals.

The organisation incorrectly believed these employees were not covered by an award, when in fact they were covered by SCHADS, which meant that in this particular situation, they should have been scheduled for a minimum of two-hour shifts. The client faced an imposing amount of back pay.

“So even though theoretically they [the students] only did half an hour’s work,” Ryan explained, “they actually had to pay the people for two hours’ work on each occasion.”

1. Common red flag: Unclear roles 

Especially in smaller NFPs, it can be common for employees to have multiple responsibilities, meaning that it’s not necessarily clear which award they are covered by – or whether they are covered by one at all.

The fix: Spend time defining and refining the role/position description for every employee.  Then use the Fair Work pay calculator to classify each role’s award. Some roles – like marketing, HR and IT-related employees – won’t be covered by an award, but if they aren’t explicitly excluded from the Award system, then they are likely to be covered by the Miscellaneous Award 2010.

Ryan suggests making this an annual process:

“An annual audit on award coverage, both as to the award that their staff are covered by and the level that they’re operating under, that would be a massive start. That would probably cure about 50% of all ills, if not more. Throw in a good time recording system and an ongoing conversation with your payroll provider, so that they have an understanding of your rosters and all that sort of stuff.”

It’s also a good idea to keep informed of award changes. The Fair Work Ombudsman allows anyone to sign up for email updates on award and minimum wage changes.

When developing position descriptions for future hiring, Ryan says it’s a good idea to “try to at least have a look at the categories and use some of the language in [the relevant award] so it’s clearer as to what level the role is at. And that makes it clearer as to what the required pay rate is.”

And if you’re regularly asking employees to complete work above their pay grade, consider a promotion to a more senior role.

2. Common red flag: Overtime

While some awards say that an employer can require an employee to work overtime “where reasonable”, that definition can be vague, and needs to be determined on a case-by-case basis.

The fix: If your employees are covered by an award, accurate record-keeping is the answer. It’s important for NFP leaders to understand what does and doesn’t count as overtime in the relevant award. According to Ryan, a few scenarios to consider include:

• Lunch breaks. A decent lunch break isn’t just a boon for a grumbling stomach; it could save your organisation a good chunk of money, too. Depending on the hours worked, employees who don’t take a break may be entitled to penalty rates for the hours worked in the afternoon.
• Business hours. It may seem easy to say yes to a team member’s request to take the morning off and work in the evening to make up the hours, but beware: working past set business hours can count as overtime in some cases. “There’ll be a period,” says Ryan, “and someone working outside that time – it’s overtime, even if they didn’t turn up to work till midday.”

For team members not covered by an award, it’s fine to expect the occasional extra hour here or there. But if team members regularly work more than their paid hours, that’s a problem and can lead to stress or even burnout.

Check in with any team members who regularly work overtime; discuss their current workload and identify items you can reallocate.

3. Common red flag: Contractors who may actually be employees

Another easy mistake is misclassifying your workforce – for instance, by assuming you don’t need to pay a contractor superannuation or leave entitlements. While this is usually the case, sometimes the nature of your working relationship may mean the contractor is legally classified as an employee.

The fix: Before engaging an independent contractor – even if it’s just for a few hours’ work – you should confirm that they aren’t misclassified employees (who would be entitled to superannuation and leave entitlements) by applying the start of relationship or whole of relationship tests.

Finally, seek legal advice on any issues you don’t feel equipped to manage internally. Access free advice on pay and conditions through the Fair Work Ombudsman’s Employer Advisory Service.

What does the introduction of Commonwealth criminal wage theft laws on 1 January 2025 mean for NFPs? 

Luckily for NFP leaders, Ryan says the criminal wage theft laws introduced at the beginning of last year are unlikely to pose challenges for NFPs operating in good faith, as the laws target employers who intentionally withhold their employees’ wages, leave entitlements or superannuation. Employers who do this could face criminal charges, fines in the millions, or potential prison time.

Ryan does caution, however, that it’s not impossible for NFPs to face charges. If, for instance, an NFP receives legal advice in relation to underpayment and chooses to ignore it, a case could be made for intentional wage theft.

What to do if underpayment is identified 

If you’ve unintentionally underpaid someone, don’t panic. Acting swiftly and transparently will help the trust you’ve built with your workforce survive an underpayment issue:

1. Calculate the difference between what the employee should have been paid and what they were paid. Include all entitlements, like superannuation, allowances, or penalty rates. Use the Fair Work Ombudsman’s Pay and Conditions Tool if required.
2. Communicate respectfully with the affected employee or employees. Confirm arrangements for backpayment.
3. Prevent recurrence by strengthening your systems through regular reviews and by staying up to date on changes to minimum wages and awards.

For NFPs with fewer than 15 employees  , the Voluntary Small Business Wage Compliance Code by the Fair Work Ombudsman provides tools and resources and provides a level of protection from prosecution if you do unintentionally underpay your staff.

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