Payroll Audit – Don’t wait until it’s too late

Posted on 23/6/2020

HR & Recruitment

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As the list of companies being caught out for underpaying staff continues to grow, it has highlighted the need for businesses of all sizes to ensure they are compliant, and a payroll audit is the best place to start.

Just recently, Woolworths announced to shareholders that its staff underpayments saga had blown out by more than $75 million to $390 million, with the company indicating that the bill could climb even higher as it undertakes the complex task of reviewing all staff payments.

The news also comes mere months after fellow supermarket giant Coles admitted to underpaying management staff to the tune of $20 million dollars over six years.

The issue has become so widespread in the past 6-12 months, that SBS News has even developed a running list of all businesses that underpaid staff in 2019. This ongoing list names no less than 20 companies from across the country that have been found to have underpaid their staff. It is safe to say that ending up on a list such as this, would be the nightmare of any reasonable business owner, operator, HR manager or even payroll officer.


How is it possible that so many businesses are now suddenly under scrutiny for this?

One of the most alarming emergence from the ongoing wages scandal is perhaps the lack of a trend in the type, and size, of businesses involved. Some of the names that we have seen in the spotlight of wage underpayment have ranged from smaller operators, such as  individual franchisees from Coffee Club and Crust Pizza, to corporate giants, like Coles, Bunnings and now Woolworths.

The lack of a common trend amongst the companies that have admitted to underpaying wages just goes to highlight the fact there is no sole contributing factor that can be gleaned from the company profiles of those in the spotlight of the current wages scandal. In some cases, we have seen that the errors boiled down to what appears to be a case of simple negligence. However in other cases, there appears to be cause to believe that there has been a deliberate attempt to undermine the law.

Cecilia White, Director of Perks People Solutions, notes that in many cases, the underpayment of employee wages has been attributed to clerical or system errors that the company was not aware of. Avoidable errors such as these, go to highlight the need of conscientious businesses to take an active approach to payroll compliance.

“Some of the big businesses that have been involved in the underpayment of employee wages, presumably employ highly sophisticated payroll systems. With this in mind, it can come as a bit of shock to many that not just one, but multiple, large Australian businesses have been implicated in this saga,” commented Cecilia.

“At the heart of the issue, what this whole saga really highlights, is the complexity of payroll compliance and just how difficult it is to keep on top of changing legislation and Awards. You don’t have to be a small business to struggle in this area.”

“There is no excuse to be non-compliant. We find that many of our clients that we perform regular payroll audits for would otherwise not have the expertise in-house to stay across the myriad Award changes.”

“With some exceptions, most businesses don’t actively seek to underpay their staff and the ramifications for doing so are significant. Regardless of intent (or lack thereof), unintentional underpayments are treated no differently in the eyes of the law. This means that all businesses need to be active in managing their payroll requirements on an ongoing basis.”


Ignorance is no excuse

As any business owner, operator, HR manager or payroll officer would know, keeping on top of the relevant minimum Award wages can be a challenging, to say the least. Awards change frequently and different Awards can change at different times, which can have a major impact on employee pay rates, salary structures and leave entitlements (among other things). The consequences of Award changes are far-reaching for businesses and need to be managed right throughout the organisation.

For example, on July 1 2019, all Award rates in Australia increased by 3%. As a blanket increase across the board, this event may seem like it a simple change to make in any business’ payroll system. The reality, however, can be quite different. In fact, the failure to correctly apply this particular Award rate increase was one of the major contributing factors to the scandal surrounding former Masterchef judge, George Calombaris’s restaurant businesses.

The ongoing challenges of managing a payroll system, whilst staying across the environmental factors that influence it, such as Award changes, can be onerous. However, as Cecilia explains, being naive to your legislative obligations can result in hefty penalties and back-payment obligations that can put the sustainability of your business, and your reputation, at risk.

“Given the current climate and the crackdown on payroll compliance by the Fair Work Ombudsman, it’s simply not good enough for a business to plead ignorance and it certainly won’t get you off the hook from back-paying wages owed to employees” she says.

“It is impossible to understate the importance of taking action quickly. Every non-compliant pay cycle adds up and the longer you ignore any potential issues, the more expensive the penalties and back-payments will become.”


Actions speak louder than intentions

When it comes to taking action, conducting a thorough audit, or seeking external expertise is the first step in the right direction.

“A payroll audit is a really easy place to start in identifying any gaps in your systems and processes and, importantly, it gives you peace of mind knowing that you are compliant, doing the right thing by your employees and won’t be hit with any unexpected penalties or fines. Payroll audits should be conducted regularly as part of your business hygiene – making this an ongoing, regular practice ensures that you are staying on top of your obligations as an employer.”

Systems and processes, such as payroll, are designed to facilitate the operations of a business, but they should be treated in the manner of any other asset – they require maintenance and, at times, tuning to operate at optimal levels.

The right to gainful employment that meets the standards and expectations of the Fair Work Commission, and adheres to an employee’s respective Award, has been put in place to protect the end employee’s right to be paid a fair wage for their work. Any deviation from this tenet puts a business at risk of non-compliance regardless of unintentional mishap or intent.

The key lesson to be learned from the current spotlight that has been shone on such a wide variety of businesses named in the underpayment of employee wages, is that all employers carry the same onus of responsibility to ensure that employees are paid fairly, no matter their size, industry or ownership.

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