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Is your payroll system underpaying your staff?

Payroll systems are complicated. They perform extremely complex calculations that (depending on your workforce) can span calendar days and take into account adjacent shifts and previous work patterns. 

An array of tables need to be maintained, but they are sometimes misunderstood. Manual processes are involved and mistakes are made. So, it’s not surprising that payroll systems have a habit of paying people incorrectly. Most payroll underpayments are simply due to errors, rather than the deliberate exploitation of workers. Although some industries seem overrepresented, this is a problem that affects all categories of employer regardless of:

  • the industry;
  • their size, and the resources at their disposal to get it right; or
  • whether they are in the public, not-for-profit or private sectors.

Not even the ABC is immune. Despite the national broadcaster publishing hundreds of media articles about ‘wage theft’ by others, the Community and Public Sector Union slammed the ABC over the underpayment of its casual workers in a statement released on 10 January 2019

The Fair Work Ombudsman doesn’t play favours either. It has imposed enforceable undertakings on some of its fellow government departments. In 2020/21 it slapped one on the National Library of Australia along with some other well-known brands, including IBM and an offshoot of the Uniting Church.

In some cases, you don’t need to be the one who engages in wage theft to be penalised. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 amended the Fair Work Act 2009 to hold franchisors responsible for certain contraventions of the Act by their franchisees.

Unfortunately, payroll problems can linger for years and undisclosed liabilities simply accumulate. But the costs aren’t limited to the penalties, the cost of complying with enforceable undertakings, the underpayment itself and the damage to your reputation. Remember there’s also:

  • Superannuation;
  • Long Service Leave Levy (when a portable scheme is involved);
  • Workers compensation insurance;
  • Payroll tax; and
  • Interest.

So what should you do?

Recognise that wage theft often originates outside of the payroll software

Ensure you don’t have a culture where non-compliant work practices are encouraged or enforced. If the award or agreement provides for a paid meal break, make sure it is taken. If staff are ‘strongly encouraged not to claim overtime’ it could be bought up later by staff who had complied, but kept notes to share with unions or the Fair Work Ombudsman.

Make sure events that invoke penalties and overtime provisions actually enter the payroll system

Give it a fighting chance to pay people correctly. For example, if someone works through a paid meal break; it has to be entered into the payroll system appropriately, otherwise the payroll system will think it is just ordinary time, rather than time and a half or double time.

Ensure the software models your awards or agreements

It has to be configured correctly. For example, it must be capable of recognising when two shifts have to be joined together as a ‘broken shift’ and when the maximum number of ordinary hours has been exceeded during a given payroll period.

Understand the award or agreement 

That way, you can monitor the payroll system and take corrective action, not just if, but most likely when it begins to pay people incorrectly.

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