What you pay an employee in Australia is set by law, not by negotiation. You can pay above the legal minimum, but you cannot pay below it. Most small business owners get one part of that minimum wrong on their first hire, which is usually how underpayment claims start

In short: the legal minimum you must pay an Australian employee is set by the modern award covering that role. You find it using the Fair Work Ombudsman's Pay and Conditions Tool at calculate.fairwork.gov.au by entering the role's duties, the employee's age, and whether they're full-time, part-time or casual. Below the floor is illegal regardless of what's in the employment contract. Above the floor is your call, but penalty rates, allowances and superannuation still apply on top

How to find the minimum legal pay rate in Australia

The Fair Work Ombudsman runs a free tool called the Pay and Conditions Tool (most people call it the PACT calculator). It's at calculate.fairwork.gov.au and it's where every Australian pay decision should start

You enter the role, the award that covers it, the employee's age, and whether they're full-time, part-time or casual. The calculator returns the minimum hourly rate, weekly hours, leave entitlements, and any allowances or loadings that apply for that classification

That number is the floor. You can pay above it. You cannot pay below it, even with a signed contract that the employee has agreed to. Australian employment law does not allow employees to contract out of their minimum award entitlements

In the payroll audits we run for new clients, this is where most underpayment issues start. Not bad intent. Someone got the rate wrong on day one and nobody checked it again for three years

Why job titles don't determine pay rates under Australian awards

This is the part that catches most owners out. You cannot call someone a "manager" and put them on the manager rate. Modern awards classify employees based on the work they actually do, not what's printed on their business card

The General Retail Industry Award (MA000004), which covers most retail roles, has eight classification levels. A Level 1 retail employee operates registers, stocks shelves and serves customers. A Level 4 carries supervisory responsibility, has ordering authority and makes decisions over other staff. A "shop manager" could land at Level 4 or Level 5 depending on what they actually do day-to-day

The same logic runs through every award. Get the classification too low and you underpay. Get it too high and you've effectively given the employee rights you may not have intended to grant, including supervisory expectations and broader decision-making authority

When you're not sure, ring the Fair Work Ombudsman on 13 13 94. The advice is free and they'll walk through the classification question with you

What does an Australian employee actually cost beyond the hourly rate?

The fully-loaded cost of an Australian employee typically sits 15 to 20% above their base wage once superannuation, workers compensation, payroll tax and award allowances are factored in. The hourly rate is just the starting line

  • Superannuation. 12% of ordinary time earnings from 1 July 2025. On a $60,000 salary that's $7,200 a year, payable quarterly. Under the Payday Super reforms from 1 July 2026, super contributions must reach the employee's fund within 7 business days of each payday
  • Workers compensation insurance. Mandatory in every state and territory. Premium varies by industry risk classification, higher for trades and construction, lower for office-based work
  • Payroll tax. A state-based tax that only applies above a threshold (which varies between states). Most single-employee small businesses don't trigger it, but it's worth checking your state revenue office once total wages climb past the threshold
  • Leave entitlements. Four weeks paid annual leave, 10 days paid personal/carer's leave, paid public holidays. These come out of the wage budget rather than sitting on top, but they affect cashflow planning
  • Allowances. Many awards include uniform, tool, travel, first aid or laundry allowances. These are easy to miss because they're not always paid every week

Casual employees skip annual leave and personal leave (they get a 25% casual loading on the hourly rate instead), but everything else, including super, workers comp, and allowances, still applies

When do penalty rates apply under Australian awards?

A penalty rate is a higher hourly rate that applies when an employee works hours considered outside their ordinary working pattern, including weekends, public holidays, evenings, early mornings and overtime. The exact percentages vary by award and by classification level

The General Retail Industry Award (rates effective 1 July 2025) sets Saturday work at 125% of the base hourly rate for permanent employees and 150% for casuals, Sunday work at 150% for permanent and 175% for casuals, and public holiday work at 225% for permanent and 250% for casuals. The casual figures already include the casual loading. Those rates compound fast for any business open on weekends

You cannot get out of penalty rates by paying a flat hourly rate above the ordinary rate, not unless you've set up one of the annualised salary arrangements covered below, and the maths genuinely works in the employee's favour over a full pay cycle

"Can I just pay a salary above the award?"

Yes, but not as simply as it sounds. There are two routes

  • Annualised wage arrangement under the award. An annualised wage arrangement is a clause in some modern awards that lets an employer pay a salary covering ordinary hours plus expected overtime, penalty rates and allowances, subject to written notification, capped averaging of penalty hours, and an annual reconciliation. Not every award has this clause, and the conditions are strict
  • Common law contract with a set-off clause. You can also use an employment contract that "buys out" specific award entitlements by paying a higher base rate. This still has to satisfy what's called the Better Off Overall Test - the employee must be no worse off than they would have been under the award when you compare total compensation over a reference period

In both cases the reconciliation obligation does not go away. You still have to check, at least annually, that what you've actually paid is at least equal to what the award would have required given the hours worked. We see this most often in retail and hospitality. A flat $30 an hour rate that looked fine in winter ends up short by a few thousand dollars after a summer of Saturday and Sunday trading

What happens if you underpay an Australian employee?

The Fair Work Ombudsman has steadily increased its enforcement focus on underpayment. As of 1 January 2025, intentional underpayment of wages is a criminal offence at the federal level under the Closing Loopholes amendments to the Fair Work Act. Honest mistakes are not criminal, but civil penalties for non-intentional underpayment still apply, and the statutory limitation period for an employee to recover an underpayment is six years (Fair Work Act s 544). The Fair Work Ombudsman treats six years as a minimum review period, not a ceiling, where systemic non-compliance is detected

For small business employers (fewer than 15 employees), the Voluntary Small Business Wage Compliance Code provides a meaningful safe harbour. If you can show you made genuine, documented efforts to pay correctly, the Fair Work Ombudsman cannot refer you for criminal prosecution even if an underpayment occurs. Reading the Code is one of the most useful hours a new employer can spend

The businesses we see in trouble are almost never underpaying on purpose. They classified an employee one level too low, used the wrong award, missed a uniform allowance, or set up an annualised salary and never ran the reconciliation. The remediation looks the same either way: back-pay, interest, and often a Fair Work investigation that lands at the worst possible moment

The cheapest insurance is getting it right at the start

Where to get help working out pay rates

For working out what to pay:

  • Fair Work Ombudsman. calculate.fairwork.gov.au and 13 13 94. Free, government, the authoritative source on award classification and minimum rates
  • HR consultant. For the broader employment piece including contracts, position descriptions, performance management, and policies
  • Employment lawyer. For complex or contentious matters including termination disputes, enterprise agreement negotiations, executive remuneration, and anything where the cost of getting it wrong is high enough to need privileged advice

For running the payroll once you've decided what to pay, that's where we come in. We handle the processing side: Single Touch Payroll reporting to the ATO, super calculations and payments, PAYG withholding, leave tracking, and year-end reconciliation. The rate-setting decision sits outside what a Registered BAS Agent is legally allowed to advise on, but once you've made the call, our managed payroll service makes sure it all flows through cleanly

The hard part of paying someone in Australia isn't the maths. The calculator does that. The work is getting the inputs right: the right award, the right classification, the full cost picture, and a reconciliation habit if you're paying a flat salary. Everything else follows from that

This guide covers the hiring-decision angle: where to start when you're working out what to pay a new employee. If you already have employees and want to check whether you've got awards, classifications and entitlements right across the board, the compliance-audit angle is in our Modern Award Compliance guide

Award rates, penalty rates and superannuation rules current as at March 2026. Award rates update annually on 1 July following the Fair Work Commission's Annual Wage Review. Always verify current figures via calculate.fairwork.gov.au