Paying Above Award Doesn't Automatically Mean You're Paying Correctly
A generous hourly rate can still produce an underpayment if overtime, penalties, allowances or an individual flexibility arrangement do not reconcile to the underlying award.
Written by: Melissa Cunliffe (CA)
Most employers who pay above award are trying to do the right thing. They want to attract good people, simplify payroll and provide remuneration that is clearly better than the minimum.
But a higher base rate does not automatically wipe away every award entitlement.
That became very visible in September 2026 when Fair Work announced that Goodwin Aged Care Services had back-paid more than $1.39 million, including interest and super, to 335 employees. The organisation self-reported after an internal audit found that individual flexibility arrangements for 313 employees did not satisfy the better-off-overall test and were overly reliant on non-monetary benefits. Separate payroll configuration issues also caused missed penalty rates for other employees.
Why Paying Above Award Does Not Automatically Mean Compliance
When an employee is award-covered, compliance generally starts by understanding what the award would have required for the actual hours and circumstances worked.
Ordinary hours
Overtime
Weekend and public-holiday penalties
Shift penalties
Allowances
Minimum engagement rules
Meal and break provisions
Casual loading where relevant
An above-award salary or hourly rate can potentially compensate for some entitlements, but the arrangement needs to be legally effective and the employee must still be better off overall where the relevant mechanism requires that test.
The problem with 'all-inclusive' rates
Suppose an employer pays $40 an hour when the ordinary award rate is lower. The employer assumes the difference covers overtime and penalties. That may be fine for one roster and insufficient for another.
If the employee begins working more weekends, public holidays or long shifts, the award value of those hours can overtake the buffer built into the higher rate.
A signed agreement is not automatically compliant
An employee agreeing to an arrangement does not necessarily make it lawful. Employment rights set by awards, agreements and the Fair Work Act cannot simply be signed away.
Payroll software cannot fix the wrong interpretation
Xero, MYOB or another payroll system can calculate exactly what it has been configured to calculate. If the classification, overtime trigger or allowance setup is wrong, the software can produce a beautifully consistent underpayment every pay run.
Payroll accuracy is not only a software question. It is an interpretation question first.
Regular reconciliations matter
For employees on annualised or all-inclusive arrangements, periodically compare actual pay against what would have been payable under the underlying award for the actual hours worked. Do not wait for an employee complaint or Fair Work investigation.
Keep time records even when somebody is salaried
If the compliance assessment depends on actual hours, employers need reliable records of those hours. A salary does not automatically make time irrelevant.
The 4P's lens
People - Good people should understand how they are paid and have confidence that the arrangement is fair.
Preserve - Correct payroll protects cash by avoiding years of accumulated back-pay liabilities.
Protect - Review awards, classifications, IFAs, overtime and payroll configuration before errors become systemic.
Prosper - Clear, compliant remuneration supports retention and lets the business grow without building hidden employment debt.
A simple employer check
Which award and classification applies?
What hours does the employee actually work?
What penalties, overtime and allowances would the award create?
What does the employee actually receive under the current arrangement?
Can we demonstrate that the arrangement leaves the employee no worse off where required?
Paying above award is a positive intention. The next step is making sure the numbers prove the intention is actually being delivered.
Contact Future Accounting to review your payroll arrangements and help identify potential compliance gaps before they become costly
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
