How to avoid getting trapped in payroll error

Payroll scandals have dominated the news lately – but how can companies avoid potentially costly mistakes?

How to avoid getting trapped in payroll error

This article was produced in partnership with Australian Payroll Association

From the 2019 Woolworths scandal, to underpaid employees at Qantas, Lush Australia, ABC and Merivale, errors in payroll have been a hot topic in the news over the last several years.

Australian businesses have seen that payroll errors can be very costly, and can cause significant damage not only to their own books, but also to their brand’s reputation.

However, the majority of payroll errors are just that – accidental errors, and longer-term issues which were not spotted or corrected in time. Given the complexity of payroll, identifying problems hidden deep within your payroll technology, data or processes can be tough. According to the Australian Payroll Association, this is a particularly difficult task for HR managers who are not trained in payroll, and who won’t know where to begin looking, or which questions to ask.

“Very often, HR managers will tell me that they’re signing off a payroll report every week, but they have no idea what they’re signing or what the report is telling them,” Australian Payroll Association CEO Tracy Angwin said.

“They still have to sign it off as being ‘true and correct’, but they don’t have the expertise to tell when they’ve actually got a problem – so the main way they’ll find out about problems is when an employee makes a complaint.”

“Payroll is so complicated that often, your employees may not even pick up that they’re being paid incorrectly,” she explains.

“The big payroll problems in large employers often start with a small issue – for example, not paying Superannuation on an allowance that they should be paying it on. That can turn into a big financial problem over a period of years and a large employee population.”

Commenting on some of the most common issues in payroll, Angwin said that they are often caused by simple mistakes. For example, a shift penalties of 50% could easily be coded as overtime of 150%. The outcome of this is that the employee will be accidentally underpaid Super on the ordinary hour and the shift penalty. This is because Super is payable on shift penalties and ordinary hours, but not on overtime hours.

Angwin notes that errors like this can compound over time, particularly in organisations with a large employee population. But since the employee still receives the correct salary, they themselves are unlikely to notice the error.

“Based on small problems like this, even a medium-sized employer could end up with millions of dollars in superannuation backpay,” Angwin said.

“If you’re not actively looking for it, you’re probably not going to find it. But every time an HR director signs off that payroll report as being true and correct, they’re potentially signing off something that’s incorrect.”

When it comes to preventing these issues, Angwin said that the most important basic requirement is having a payroll team of the right size, with the right knowledge and competence.

She noted that is also important for HR managers to understand the basics of a payroll report. This will equip them with the knowledge of what data they need to look at, how to pick up inconsistencies, and how to proactively identify any potential issues.

“Everyone who works in operational payroll should have a Certificate IV in Payroll Administration, as a minimum,” Angwin said.

“If you’re a HR director and you want to de-risk your payroll function, the first thing you need to do is either find people with that qualification, or get your existing team qualified.”

“Australian Payroll Association is also developing a course for HR people which teaches them what they need to know about payroll, so that they can sign off that payroll report confidently and optimise their payroll delivery strategy,” she explains.

“They don’t need to know all the minutiae of how payroll works, but they do need to know what to check and which questions to ask.”

Australian Payroll Association is an organisation which helps businesses keep their payroll departments running smoothly, and provides payroll audit, training and consulting services. Angwin said that having a payroll audit is a vital part of the process, as a specialist will be able to look at everything from your technology, to your staff, to your systems and codes, and will provide recommendations on where to improve and how to avoid future issues.

“Every company should do a payroll audit – and not with an accounting company,” Angwin said.

“You need to audit things like the setup of your payroll system, and this should be done by someone who understands how payroll technology is set up, and can check that all your codes are set up correctly.”

“Finally, make sure that your people have the capability and competencies that you think they have,” she added. “We have a 35 question multi-choice payroll knowledge assessment which gives us a really quick view of a payroll person’s knowledge, and where we might need to provide training.”

“Ultimately, we’re all about creating confidence in how people are paid,” Angwin concludes.

“If you’re a HR director and you want to have that confidence, then you need to make sure that you have an audit done, and that you educate yourself on what questions you should be asking every time you sign off a payroll report.”

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