With payroll mistakes on the rise and the Fair Work Ombudsman cracking down on underpayers, Fred Van Der Tang, CEO of payroll compliance technology company PaidRight explains how your small business can avoid the errors and stay compliant.

The Fair Work Ombudsman recently released a staggering report revealing that Australian workers have been back-paid $473 million due to underpayments – its third-highest annual figure recorded ever.

The litigation also led to an eye-watering $21.2 million in court-ordered penalties for underpaying business owners. Ouch.

This should serve as an alarm bell to businesses of all industries and sizes on the critical need for preventative measures when it comes to the complexities of wage compliance in Australia.

Australia has a proud history of protecting worker rights, which is something we absolutely applaud.

However, in practice, Australian labour laws governing how wages are calculated and paid can be complicated. It is widely understood that Australia’s payroll compliance landscape is among the most complicated in the world.

So it’s no wonder businesses can easily get caught out.

To add to the challenges, many business owners, board and c-suite executives don’t – or can’t for a number of reasons – prioritise mitigating this risk.

For instance, employers often conduct only sporadic audits of their payroll practices – typically once a year – while those without dedicated HR or payroll staff may find it challenging to keep track of the specific provisions for different employees, such as base wages, penalties, overtime, and allowances. Even businesses with dedicated HR and payroll departments find it difficult to manage.

Adding to the challenges are outdated systems that may not be configured and maintained properly, or even legacy payroll systems that aren’t updated for the changing legislation, manual data processes, and a lack of dedicated resources.

Some industries are also more vulnerable, such as aged care, healthcare, child care, education, retail, and hospitality. This is due to ambiguous overtime clauses, and complex worker and roster patterns which can lead to difficulty in accurate record keeping.

All of the above leaves organisations exposed to significant and varied risks: employee trust, financial penalties, costly inefficiencies, reputation damage, and even criminal charges. These risks do not discriminate between size, or industry.

5 ways business owners can proactively mitigate payroll risks

Leverage tech to highlight and fix payroll errors before they happen

We all know that prevention is always less of a headache than cure. And preventative measures don’t have to be manually labour intensive either.

There are a range of automated compliance platforms that can seamlessly integrate with your existing payroll function, enabling you to review your entire workforce effectively. These tools allow you to identify errors sooner rather than later, so you can avoid costly mistakes. They instantly detect and address gaps and outliers in your payroll data, so your team spends less time manually reviewing thousands of data points.

If you settle for periodic audits instead of setting up preventative measures it’s like switching on your cybersecurity for one day every month!

Having preventative measures in place constantly instead allows you to identify errors in pay before your pay run – not after.

Get familiar with your payroll risk exposure

Avoid taking a head in the sand approach when it comes to payroll risk – as much as it may be tempting.

By understanding total risk exposure, you are more likely to know where you could make mistakes, and prevent them from happening in the first place. So all organisations should in some shape or form engage an independent payroll review to understand risk exposure and how to mitigate it.

This will mean employers can not only make informed decisions but also help to foster an employee-first culture. Your employees will value the security of knowing they will always receive fair and accurate pay, breeding trust between employee and employer.

Ensure “always on” monitoring of Award and Enterprise Agreement (EA) clauses

Award and EA clauses can be difficult to interpret, as they can be highly ambiguous with no one right answer. They can also change at various points. Unfortunately this can lead to costly discrepancies for those unclear on the interpretations.

So another critical pre-emptive tactic is to regularly review how your organisation interprets these clauses, and ensure your payroll systems are configured to constantly reflect these interpretations accurately.

Don’t get payroll to review their own work

Don’t ask payroll staff to mark their own homework! Consider establishing a role within your team specifically focused on risk or someone in finance to help review or manage oversight here.

This person should be equipped with the right tools and authority to perform regular checks and audits, ensuring that payroll practices align with legal requirements. Combining this deep human expertise with various forms of payroll technology will provide the greatest holistic protection.

Find unexpected solace in wage remediation for past mistakes

We all make mistakes – especially busy employers. But fixing these mistakes doesn’t have to be laborious, time consuming, or stressful.

If you find you’ve accidentally underpaid your staff, there are tools for performing “wage remediation” to identify and correct instances of underpayment quickly and painlessly – for organisations of all shapes and sizes.

Taking these preventative steps – and one reparative one – can help businesses of all industries and sizes navigate the complexities of wage compliance and avoid any costly mistakes.

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