Award Classifications: Why You Need to Review These Annually

Keeping up with your lawful obligations as an employer isn’t a set and forget job. Every employer should be reviewing their human resources (HR) function on a regular and scheduled basis to ensure compliance with the Fair Work Act, avoid expensive fines and legal fees and avert the risk of reputational damage their business.

One area often overlooked is correct application and updating of Award classifications for each employee in your team.

What Are Award Classifications?

​Award classifications (also known as levels or grades) are descriptions of roles and types of work. They’re usually found towards the end of an Award, often in the section titled “Schedule A – Classification Structure and Definitions”.

Classification descriptions often include information about:

• the types of duties an employee may be expected to perform
• whether the employee supervises other employees
• the level of experience or qualifications an employee needs to work at that level.

An employee’s minimum pay rate is determined by their Award classification. Employers need to make sure they’ve correctly identified each employee’s classification.

Correct Classifications: A Lawful Requirement

Under the Fair Work Act, employees must be classified correctly under the Modern Award level applicable to their role. Misclassify a role (or not classify one at all) and you risk underpaying the worker…exposing you and your business to claims for back payment of entitlements, fines, reputational damage and the time and stress of responding to the Fair Work Ombudsman on an employee’s claim for wages underpayment.

In 2022 – 2023, the Fair Work Ombudsman recovered over $509 million in unpaid wages for 251,000 workers. A large portion of these recoveries came down to simple mistakes in classification.

New laws commencing 1 January 2025 increase the maximum penalty for a contravention related to wages underpayment.   

The new laws will mean that this maximum penalty can (in certain circumstances) be the greater of:

• 3 times the value of the underpayment
• the relevant penalty unit amount for the contravention.

If you’re happy to take the risk, leave your classifications as they are. But if you can see the benefits in investing a little time to get things right to save the drama associated with responding to a claim for wages underpayments, a review of Award classifications is a smart place to start.

The Fair Work Ombudsman’s website contains a number of resources for those seeking guidance on Award classifications. These include:

• “Award classification” information page
• Pay Guides
• Pay and Conditions Tool (PACT)

Why Misclassification Happens – And How to Avoid It

In our experience, misclassifying employees is rarely an intentional act from an employer. In fact, most businesses don’t realise they’ve made a mistake until they receive a call from the Fair Work Ombudsman (FWO) in response to a complaint from a disgruntled employee.   

Classification errors typically happen because:

• employers are not aware of the different classifications within Awards covering their employees
• roles evolve, but the employer’s paperwork to confirm the new classification and rate of pay doesn’t keep pace.

Intentional error or not, once the FWO is involved, it’s too late. And you’ll pay some type of price.

Common Reasons for Misclassification

• job responsibilities change, but the person’s classification and rate of pay remains the same
• promotions or role shifts aren’t reflected by updating HR documents or payroll information
• Modern Awards and rates of pay are updated and employers aren’t aware of the changes

If you’re not reviewing your employees’ classifications regularly, you may be underpaying your people without even knowing it. That’s why we recommend an annual review as one of the simplest ways to stay on top of your compliance obligations.

High Risk Industries

While classification reviews are vital for every business, some industries carry greater potential for risk due to the complexity of their applicable Modern Awards, frequent employee role changes and varying levels of responsibility across classifications. In these sectors, it’s not uncommon for a person’s role to change without the required updates to HR paperwork or payroll systems keeping pace, which can lead to accidental underpayments or compliance breaches. Put someone in charge of others? This may be a higher classification. A manager taking long service or parental leave and appointing an existing worker to temporarily fill in? Same.  

If your business operates in one of these more complex or fast-paced industries, reviewing Award classifications regularly becomes even more critical. Staying ahead of changes not only protects your business from financial penalties but also ensures your team is being paid correctly and treated fairly, something that matters even more when employee turnover is high in your sector, shifts vary or duties change quickly. So what sectors might fall into the high-risk category? Here’s our fast 5:

1. Hospitality and Retail – multiple Awards, classification levels, allowances, penalty rates and frequent changes to an individual’s working hours make misclassification easy. Seasonal work can also impact classification.
2. Construction and Trades – the Building and Construction General On-Site Award has specific rules for apprentices, labourers and supervisors, including daily and weekly hire, residential and non-residential rates. Getting things wrong impacts on wages and allowances.
3. Health and Aged Care – classifications often depend on qualifications and duties. Errors here can lead to significant underpayments, especially for Nurses, Receptionists and support workers.
4. Clerical – the Clerks – Private Sector Award covers a wide range of administrative roles across industries. It’s easy to misalign classification as tasks evolve or expand over time.
5. Manufacturing and Transport – classifications often hinge on skill level, machinery use or shift arrangements. And the Manufacturing Award contains 14 different classifications. One small error can create big payroll problems.

Key Takeaways

While some Awards are more complex than others, that’s no excuse to avoid the details around complying with your employment obligations. If your business operates in hospitality, health, construction or transport, you’re working within environments that can change quickly, with potentially higher risks of Award misclassification. That just means you need to be more diligent. Staying on top of classifications in these sectors shows your professionalism and reduces the chance of disputes or surprise audits catching you off guard.

Best Practice: The Annual Review

Classification of positions within your business isn’t a one-time administrative task, it’s something you need to proactively schedule and review. And at a minimum, your formal review should be undertaken annually. People come and go, roles change, responsibilities grow and Awards get updated. If you’re not regularly checking the Award classifications of your people, it’s easy to fall behind without realising. An annual review gives you the chance to pause, reflect and make sure your paperwork matches what’s actually happening on the ground with your employees. It’s a simple step that helps prevent underpayment claims, maintains trust from your team and protects your business reputation.

Need help reviewing your employee classifications? Let’s do a quick check and make sure your house is in order. Call Bare Bones Consulting on 0401 279 065 for a free initial consultation.

Key Takeaways

• Not classifying employees correctly is a common issue that can lead to serious financial risk as a result of non-compliance.
• Employees must be matched to the correct Award and classification level, based on their key responsibilities, experience and qualifications.
• Annual reviews help ensure classifications stay accurate as roles evolve and people move within your business.
• The Fair Work Ombudsman’s online resources in conjunction with obtaining advice from an experienced HR professional can make the classification process simpler for you

How to Conduct an Award Classification Review

While a review into Award classifications doesn’t have to be complicated, it should be thorough. And completed under guidance from someone with experience. Here’s our suggestions on steps to include:

Step One: Review the Employee’s Day-to-Day Responsibilities

Compare each employee’s current day-to-day duties with the classification descriptions in the applicable Award.  Have they taken on more responsibility? Are they still doing what they were originally contracted to do? Recently completed some type of professional development course? Changes often mean a new classification is appropriate.

Step Two: Confirm the Right Award Applies

With over 120 Modern Awards, using the right one is key. Awards are industry or occupation-based, and apply to employers and employees who perform work covered by the Award. If the person’s role has changed fundamentally, it might be the Award covering the role has too.

Step Three: Use the Fair Work Ombudsman’s Pay Guides

These Guides are updated at least annually and list hourly rates, penalties and allowances by classification level. Pay Guides also contain a summary of allowances located at the end of the document. They offer a simple alternative to scrolling through the Award for information.

Step Four: Update Contracts and Payroll Records

If an employee’s classification changes, you may need to update their rate of pay, overtime and penalty rates and applicable allowances.  Don’t forget to update your payroll system with this new information too.

Step Five: Communicate With Employees

Changes to Award classifications should be confirmed in writing to the employee. You can issue a new Contract but there’s a simpler method. Let us show you how. Issuing the right documents to your team in a timely and professional manner builds trust and helps prevent disputes later on. This step is super important…and often neglected.

Key Takeaways

A classification review isn’t about ticking boxes, it’s about understanding how your people’s roles may have changed over time and holding accurate records reflecting this. Getting things right around pay and conditions shows your staff that you value their contribution as well as providing you peace of mind knowing you’re not exposed to non-compliance and the penalties associated with this. Undertaken at least annually, a classification review forms part of your “business as usual” processes that helps you manage your risk, enhance your professional reputation and set you apart from your competition.

Stay Ahead of Compliance Issues

Genuine compliance isn’t just about meeting the minimum standard. It’s about running an enterprise with processes that are transparent, legally sound and right for your business, people and operating environment. Regular classification reviews help you stay ahead of issues before they escalate, saving you time, money and drama. Our recommendations?

1. Schedule Regular HR Audits – make classification reviews part of your annual HR checklist. Small step = big advantages.
2. Train Your HR and Payroll Teams – your people handling day-to-day compliance should understand how awards and classifications work. A short training session goes a long way. We can help!
3. Bring in Expert Help When Needed – if you’re unsure, get support from a consultant with genuine HR Manager-level experience who knows the system and how these apply to your business. We’ve helped dozens of businesses correct misclassification situations quickly and easily.
4. Stay Up to Date – wage rates change every year. Sign up for updates from the Fair Work Ombudsman or find someone with experience who can monitor changes for you.
5. Create a Compliance Strategy – put a system in place to review roles, adjust classifications and update Contracts of Employment on a scheduled basis. Any underpayments should be flagged and rectified immediately, with processes implemented to foster ongoing checks and audits. This keeps your business protected, gives you peace of mind and gives your team confidence in you as an employer.

Key Takeaways

Being proactive in ensuring your employees are classified correctly isn’t just about avoiding fines, it’s about being recognised by your employees, competitors and community as the kind of employer who does the right thing. Regular reviews, structured systems and well-informed staff reduce risk, build trust and strengthen your workplace culture. When compliance becomes part of how you operate, not just something you fix when it breaks, you create a stronger, fairer business that good people – both employees and customers – want to be part of…and stay with.

Frequently Asked Questions (FAQs)

Understanding Award classifications can feel overwhelming, especially if it’s your first time undertaking a formal review of your team. Here’s some answers to questions we’re often asked:

How Often Should I Review Employee Classifications?

At least once a year, or whenever there’s a significant change in someone’s role or responsibilities. Pay rates change from 1 July each year, with new rates applying from the first full pay period on or after 1 July so many employers conduct their review just after this.

What Happens If I Get it Wrong?

If you’ve underpaid someone due to misclassification, you’ll need to provide the employee with written notice of the error and back-pay them for any loss of income. Failure to provide the outstanding amount within a reasonable timeframe exposes you to investigative action and potential financial penalties from the Fair Work Ombudsman. While mistakes can happen, addressing these early and letting the person involved know goes a long way to keeping the trust of your team.

How Do I Know Which Modern Award Applies?

Visit the Fair Work Ombudsman’s website to browse awards or use their “Find my award” page.  You can also contact the Fair Work Infoline on 13 13 94 for general advice. If you’d like HR advice tailored to your business, people or industry, why not call Bare Bones Consulting? We specialise in keeping things simple so you can focus on building your business.

Can I Reclassify an Employee Mid-Year?

Absolutely. If someone’s role changes, their classification should be updated right away. Waiting can increase your risk of non-compliance and expose you to significant penalties.

What’s the Best Way to Make Sure I’m Paying People Correctly?

Make use of the Fair Work Ombudsman’s Pay Guides, Pay and Conditions Tool (PACT) or speak with an experienced HR Consultant who knows how to interpret awards and classifications properly.

Key Takeaways

Correct classification of employees doesn’t have to be confusing, but it does require care. It’s one of those things that might seem less important, until it blows up in your face. Then it definitely isn’t.  Getting things right helps you avoid legal trouble, but more importantly, it ensures your employees are being paid fairly for the work they do. If you’re not sure about something, don’t guess. The right advice at the right time can save you time, money and a lot of unnecessary stress.

Need HR Help? We’ve Got You Covered

Workplace laws are constantly evolving. As an employer, you have the lawful obligation to keep up. But you don’t need to invest your valuable time to become an expert in HR or Awards to get your team members’ classifications right. We like to think that’s our job.

At Bare Bones Consulting, we help employers cut through the confusion and meet their HR obligations with confidence. Whether you need a one-off classification check or ongoing support across all aspects of your HR function, we’ll work with you to create practical, tailored solutions that suit your business…not someone else’s. And we do it without subscriptions, memberships or lock-in contracts.

Why not book a free consultation to make sure your team is classified correctly and your business is protected?  

Call 0401 279 065 or submit an enquiry online.