Avoiding The Pitfalls (And Scandals) Of Payroll And Wage-Theft

However, this issue is not limited to the big end of town. While it may not make the national news, many SMEs across Australia are very likely just as vulnerable.

Australia has one of the most complex industrial relations regulatory environments in the world; a product of decades of active unionism and government intervention. This has many benefits for working Australians – but the variety and complexity of the terms, conditions and entitlements built into our industrial relations framework has also created an enormous administrative burden for payroll software systems and personnel.

Navigating the payroll landscape is complicated – but understanding a few key principles can help your business to avoid the pitfalls of payroll. And, hopefully, avoid you ending up in the news for the wrong reasons.

Know your risk

Different types of organisations are at greater risk of under-payment of staff. In general, the more complex the payroll function of a business, the more risk. It’s important to understand what your business’s risk level is.

Organisations with the most risk include those that have:

• a high proportion of casual and part-time workers, as their pay and conditions will vary week to week
• a high proportion of employees working late at night or on weekends, as this type of work often attracts a variety of different entitlements such as extra leave, allowance or penalty rates. Hospitality industry operators – like George Calombaris – have suffered some enormous blows as a result of “wage-theft” in recent times. Currently, the retail sector is under scrutiny – and sectors like aged care are likely to soon be impacted.
• activities in more than one state, as many awards and conditions (e.g. payroll tax) can vary from state to state
• business activities across different lines of business. With more than 120 industry or occupation awards across Australia, there’s a lot of room for error.

Don’t rely on your employees to accurately know their rights

The complicated frameworks surrounding various awards and EBAs that exist in Australia means that not only can businesses struggle to understand what an individual employee is entitled to – often, so do the employees themselves. The key tip here is to rely on verified and expert sources for the information.

For example – the Fairwork Ombudsman website provides access to some great tools and info – including details of changes to awards. Our team can help you with tracking down other sources relevant to your industry – contact us for assistance.

Don’t always trust the software

There is an ever-expanding number of payroll software systems available to businesses. Many are very good and offer great solutions for SMEs. However, the challenge for all systems is staying current, given the complexity and ever-changing nature of the industrial relations landscape in Australia.

Even the best system can struggle to keep up with all the different awards and entitlements – regardless of how much you pay for it and what claims the vendor makes. This exposes businesses to the risk of incorrect information.

The key advice to minimise your risk around this is to be vigilant in checking the information informing your payroll. Simple checks – such as comparing fortnightly or monthly wages calculations to the previous period and to budget; asking your software provider about their approach to managing major industry changes or updates (and making sure they are aware of them!); and having a working knowledge of the controls that your software claims to have – are a great way to put some immediate steps in place to ensure that you can confidently rely on your system.

Test the software controls

The fiasco surrounding some large corporations in the market currently may be adequate incentive for business owners to invest time and effort into ensuring that the software they are relying on is doing the job it’s supposed to.

In addition to understanding the controls built into your software to help prevent payroll errors – now is a great time to make sure that the controls are working as they should.

To test the parameters of your system, it can help to play a game of different scenarios. This could be achieved by creating dummy employees, or by running a parallel version of your system that is not linked to your business’s general ledger or bank accounts so that it doesn’t impact your accounts.

For example, suppose your EBA or award stipulates that all staff who commence their shift after 6pm get paid at a rate of time-and-a-half. Try entering a ‘dummy’ timesheet for a shift that starts at 6.05pm. Does the system automatically apply the correct time-and-a-half rate when calculating the payroll? Or maybe the EBA has a table of pay rates whereby staff are automatically supposed to get a pay rise after one year of service. Create an employee with a start date of 364 days ago. Then the next day, re-enter the system and see if their rate has changed.

Identifying some of the key entitlements offered to employees under the awards or EBAs relevant to your business – and then creating scenarios to test these in your payroll system – is the best way to start checking that your system is doing what it should.

Consider automation of data entry

If you have a workforce that relies heavily on timesheets to log a variety of shifts, give some thought to automated time recording software such as fingerprint scans. Automated solutions still need to be monitored and routinely checked, but by removing some of the manual processing – it can allow your payroll staff to focus less on data entry, and more on running data integrity checks.

If your timesheets are already automated, work with your payroll staff to run the checks on your system. Checking the integrity of your systems and searching for data anomalies will be time very well invested if there are issues.

Try and share some of the responsibility

Dedicating time and resources to the many different parts of your business that demand your attention is challenging for every business owner. As a starting point, sometimes sharing the responsibility for data and system accuracy across a team is an effective way to start putting some stronger frameworks in place, without having to invest in additional staff.

When it comes to payroll, having different staff performing the following functions will help to share the understanding of the frameworks, and may help to minimise the risk of missing important changes or system hiccups:

• Approving shifts/timesheets
• Recording payroll data
• Processing pay runs
• Approving payments
• Reviewing payroll expenses in the ledger

Making small steps towards strengthening your business practices can save you a lot of time and heartache if mistakes are discovered down the track.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.