Common Payroll Problems
Based on the experience that I have gained delivering a variety of small and large scale payroll projects, to a multitude of clients across a number of industries, I have found that the incorrect payment of employees usually stems from 1 of 3 reasons. I outline these below. If any of these sound familiar, or you are just not sure how much risk is present in your organisation, then please do not hesitate to book a free consultation.
Problem 1:
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Misinterpreted Awards / Enterprise Agreements
A significant proportion of the Australian workforce are employed under the terms of an Award or Enterprise Agreement. These instruments set out the entitlements for the employees that work for you and how employees should be remunerated for the work that they perform.
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The problem is that these rules can be complex, and should they be misinterpreted, then you may not be correctly compensating employees. This is especially true when you have a 24/7 based work force or employ a significant number of casuals. Not only this, but there is a raft of other legislation that you need to be aware of: state based Long Service Leave Acts, the Superannuation Guarantee Act, the Fair Work Act, Wage Theft legislation, and so on. These rules are constantly changing too. The legislative landscape can be a minefield and so it is no wonder that employers are continuously and unintentionally getting things wrong.
Problem 2:
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Misconfigured systems
Once you think you understand the rules, the challenge is then to configure these using a payroll solution that is suitable for your workforce and the complexities it presents. Sounds easy right? Not unless you have a simple workforce whereby all your staff are day workers, working inside their span of hours. Even then, your employees will be entitled to leave, annual leave loadings, maybe some overtime and allowances, and possibly even time off in lieu. Then as soon as your business becomes 24/7 (i.e. you employ shiftworkers) or you engage casual employees, you have additional entitlements to deal with such as shift loadings, casual loadings, additional leave entitlements, and so on.
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You may think that by paying a salary in lieu of all of these entitlements will get rid of this problem, but did you know that there are strict requirements that you must adhere to in order to apply the concept of annualised salaries?
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Choosing the right system and configuring this correctly so that the calculation rules are applied correctly every pay, can often prove to be a real challenge. This is why you see numerous businesses shamed in the media for underpaying their employees. It's often not because they have just forgotten to pay their employees something, it is more likely that their system has not applied the right calculation to correctly remunerate employees for the work that they performed.
Problem 3:
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Processes, data and an ineffective control environment
All pay calculations require data, and a process by which this data is collated, stored and then utilised in order to complete the correct pay calculation. Employees come to work and are compensated accordingly for the time that they spend delivering the services that you as an employer require. In order to pay them correctly, one of the key things you require is time worked data. Once you have collated this, you then need a process by which to upload it, check it, and then apply the necessary calculations to compensate employees correctly in line with all relevant legislation.
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Australian payroll legislation is complex, and some systems in the market are not fit for purpose when it comes to employing a more complex workforce. As such, I have seen a number of employers (some very large organisations too) performing manual award interpretation. I have also seen other businesses whereby the system can only do so much and then everything else has to be performed as a manual process. This puts businesses at a significant risk of paying their employees incorrectly due to time pressures in order to meet pay dates and manual keying errors.
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There is also a need for a strong control environment. Not only does this help to detect errors should they occur, but it also helps to reduce potential fraud. How do you verify that what an employee says they have worked, has actually been worked? The Directors of any business are responsible for paying their employees correctly and having a strong control environment goes some way in the prevention and detection of mispayment and fraud. I would strongly encourage you if you are not aware of the risks that are present in your payroll processes, to undertake a payroll diagnostic (risk assessment) to better understand where and how you may be getting things wrong.