Small payroll errors can add up and cost employees billions
Australian workers lose an estimated $2.4bn in wages each year as cases of underpayment become more rampant across the country. The underpayment crisis has become so severe that it now affects one in four employees, according to data cited by HR tech group Humanforce.
Employers’ failure to pay staff correctly is often the result of mere negligence – payment errors that can be easily avoided with the right compensation framework and payroll software in place.
No matter how hard employers work to comply with regulations, they are still likely to see lapses in their payment calculations because of human judgment.
“The road to negligence is paved with good intentions,” said Bruce Mackenzie, founder and managing director at Humanforce. “Sadly, this is a systemic and persistent problem when it comes to underpayments and payroll compliance in Australia.”
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The most common victims of underpayment errors are shift workers, owing to the fact that they are rostered differently from 9-to-5 employees. Even simple changes to the rota or workload of shift workers call for a careful review of how their pay is calculated.
“The [number] of legal traps, jargon and regulatory red tape in Australian employment law means that most employers don’t know the ins and outs of award rates obligations and the technicalities that come with them. And those that suffer are shift workers and their families as a consequence,” Mackenzie said.
Rohan Geddes, who heads PwC Australia’s payroll consulting practice, believes small errors add up.
“The vast majority of employers set out to do the right thing by their workers, but the chances of inadvertently making a mistake are extremely high and, as we are witnessing, small mistakes made across large workforces over several years add up to very large numbers,” he said in a 2019 analysis.
“Small errors, magnified over a long period, expose businesses to the risk of substantial financial penalties, reputation damage and remediation work,” Geddes said.
“No doubt there is work to be done to simplify the system and improve oversight, but in the interim, business leaders must ensure their people are paid right by keeping track of and correctly applying all the relevant industrial relations rules and policies.”
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According to PwC, the sectors most at-risk of seeing a rise in underpayment cases are:
- Construction ($320m lost per year)
- Healthcare and social assistance ($220m)
- Accommodation and food services ($190m)
- Retail ($180m)
“It’s time to shift up a gear, simplify the process, ensure everyday Australians get paid what they deserve and help local Aussie businesses stay ahead of the curve,” Mackenzie said.
He recommends having a “robust framework for ensuring that Australian workers can be paid correctly and on time” and investing in an automated workforce and payroll management system that can “alert the employer immediately [and] help them engage and manage their shift-based workforce correctly.”
