Staff wages are one of the biggest costs involved with running a business and unfortunately managing payroll can be complex.
If you have staff on different awards or varying hourly rates, it’s easy to get things wrong. This can come back to haunt you in the form of back pay requirements and fines.
What causes payroll errors?
Payroll errors usually result in staff being underpaid. They can happen for the following reasons:
- Changing award rates
- Changing superannuation requirements
- Inaccurate shift allowance tracking
- Confusion over penalty rates
- Badly configured start/finish time and shift recording systems
- Incorrect calculations of entitlements
- Overlooked or incorrect superannuation payments
- Poor tax management
- Part time and casual staff working extra hours unexpectedly
- Pay raises not being applied
- Incorrect hourly rates being entered in the payroll system
There are multiple factors that can play into how an honest business may fall foul to payroll errors and the harsh consequences that come with them. Often the set-up of payroll systems may be incorrect, or payroll administrators may not have the up-to-date knowledge of changing payroll requirements and awards.
Last year, the Fair Work Ombudsman (FWO) launched an investigation into fair pay across Sydney’s eateries and food precincts after it was found that the hospitality industry is one of the worst offenders for payroll errors. As the Ombudsman shared in a media release, fast food, restaurant and café matters accounted for 36 per cent of the FWO’s new litigations in 2020-21. As a result of legal proceedings, court-ordered penalties of $1,841,347 were imposed.
Even major employers such as Woolworths have been in the news for payroll issues. An underpayment issue was discovered in 2019, with the company forced to work through millions of records to calculate the true value of the problem.
How to avoid payroll errors
To reduce the likelihood of somebody getting things wrong, invest in a digital payroll system that automatically calculates shift allowances and pays based on hours logged in your system. This will reduce the likelihood of human error.
You also need to make sure you have enough people in your payroll team to manage the workload without letting errors fall through the cracks. Often, mistakes happen because someone is busy, and they sign off on payslips without reviewing them.
Another thing to think about is the issue of accidentally overpaying your staff. Ensure there is a clause in their contract that states an overpayment will be rectified in subsequent pay cycles (your legal team can advise on the correct wording and the right application of the Fair Work Act for this situation). This way there is less likely to be a dispute if your staff end up owing you money.
Your staff can be proactive too. Remind them to read their contract carefully and make sure you explain how they will be paid when they come on board. Make information about shift loading and award rates available so they can check how much they should be earning.
Encourage a culture where executives, managers and payroll staff welcome questions from staff and encourage staff to send an email or raise a question if they feel something is wrong on their payslip. It’s always better to catch an issue early than to face a situation where your business owes thousands or even millions of dollars in back pay.
Need help to ensure you’re not at risk of payroll errors? Contact Crest Accountants on the Gold Coast today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
