Axis or afterthought? What the underpayment crisis should teach us about payroll

 

The underpayment problems being faced by leading brands shows businesses need to better understand payroll complexities and make payroll an axis of success, not an afterthought.


A string of Australian organisations have recently suffered problems with employee underpayments. With headline figures in the tens or even hundreds of millions, each incident has inevitably led to a storm of negative publicity and a simple question. How did leading brands get it so wrong?

While each circumstance differs, the sheer number of incidents involving these brands tell us many organisations still lack the depth of understanding required to ensure payroll is done right and that it is not receiving the level of attention and emphasis it deserves as a core business process.

 

What are businesses doing wrong to cause wage underpayments?

Australia has been on a long journey of change in payroll compliance. The Australian Industrial Relations Commission (the forerunner of today’s Fair Work Commission) began the process of rationalising the Awards system across Australia to create a series of national ‘modern Awards’. Commencing in January 2010, it managed to slash an unmanageable number of 1500 to just 122.

While this process has simplified the Awards landscape, this has not been met with a parallel rise in understanding or focus on compliance within many organisations. While the Awards rules exist, it is often the understanding of these Awards and the way they are applied – either consciously or unconsciously – within the workplace that determines if employees are being paid correctly.

In many businesses, what we have seen over and over again is a lack of understanding and follow-through when it comes to the importance of understanding Awards and compliance with them. In larger and more complex businesses with a larger number of employees, often what has been missing is a fundamental granular understanding of all employee roles and applicable Awards.

 

What can businesses do to avoid underpayments in future?

When organisations talk about their employee offering, often the focus is on staff engagement or creating ‘a nice place to work’. While these are very important considerations, the underpayment crisis is reminding us that payroll is a critical core process businesses need to get right first.

If a business is not paying its people correctly then the truth is the rest doesn’t really matter.

Businesses need to reassess where they and their staff stand when it comes to payments. What that means is they need to get back to emphasising key staff understanding of the Awards that staff are being paid under and the conditions that are covered by those Awards. Are they paid correctly?

If you are talking about a larger business, who could have hundreds or even thousands of employees in different roles, employers need to be sitting down and understanding that complexity almost on a role-by-role basis, to understand the basic conditions under which these employees are paid.

Employers need to pair this with strong internal controls. While some payment breaches are being made through simple lack of review and understanding, others are deliberate, either from the top or middle management. These need to be mitigated through stronger processes and controls.

Part of the solution may mean getting external advice when needed. Recent underpayment problems in Australia have led to calls for companies to audit their payment systems and processes to ensure they are compliant and risk is managed. They may need outside assistance to get this right.

Another part of the answer may be proper training. The Australian Payroll Association claims 90 per cent of people working in payroll offices are not properly qualified through training. Emphasising the knowledge and skills required to give payroll the due attention it needs will breed better practice.

Having the right payroll system that is capable of managing the details of payroll complexity is also critical. However organisations need to focus on understanding their employee matrix before they begin to ask whether they have the right system in place or even if they should outsource payroll.

 

Axis of success, not afterthought

Australian businesses can no longer afford to get payroll compliance wrong. What we have learned from recent underpayment incidents in Australia is that when payroll is not well understood and controlled it could result in severe impacts on a business’ brand and public reputation.

More importantly businesses are also playing with people’s livelihood. Through underpayment, employees are denied the right to be paid fairly and equitably in line with their entitlements, to support their families and aspirations. Compliance in this context is more than ticking boxes.

There’s also the flipside: while we hear a lot about incidents of underpayment, up to 50 per cent of payroll error actually results in overpayment to employees. In the competitive business environment we operate in today, that’s money that businesses simply should not be leaving on the table.

The overall lesson is how important payroll processes actually are within a modern business. As more cases of underpayment are revealed by Australian organisations in coming months (something expected ahead of possible increased penalties that may flow from a current Government review) we are likely to see a noticeable shift from payroll as afterthought, to payroll as axis of success.


ReadyTech offers a full suite of payroll software solutions including HR3+, HR3 and ePayroll as well as managed payroll services with Aussiepay. Should you feel you need some support in ensuring your staff are paid right please feel free to

Contact us for more information.