Pay and payroll mistakes that can cost your business
Getting pay or payroll wrong is a major risk for any business. Errors can be costly not only in terms of money and time, they could land you
in seriously hot water, legally.
Business owners and management are ultimately responsible for any pay mistakes and their consequences, which could be a hefty fine from a
Fair Work Ombudsman Inspector, or the Australian Taxation Office, as well as any interest and legal fees.
Mishandling pay can also harm employees’ trust and confidence in the business, which can end up sapping morale and damaging your reputation.
Unfortunately, pay errors aren't rare. A 2018 study estimated 2.4 million Australian employees could be affected by payroll underpayments,
at a cost of $3.6 billion.
The combination of good payroll and HR systems will help reduce mistakes and non-compliance, and will make it quicker to identify and
resolve any issues.
Here are some common pay errors to watch out for:
Underpayment - It isn’t always easy to ensure employees receive all their entitlements, as payments for base salary,
overtime, penalties, allowances, and superannuation can be complex and confusing. Employers can make incorrect deductions without knowing
it, so don’t just accept that your payroll system is automatically accurate and payments meet current legislation and awards. Remember, your
payroll system will only do what it has been told to do, so take time to review what payments are being included and excluded, and make sure
the amounts are right.
Overpayment - Overpaying your workers can be just as costly and harmful to your business as underpaying. Nearly 70% of
audits by the Australian Payroll Association in 2020 revealed overpayments, and some errors cost employers millions of dollars. Overpayments
are also hard on employees who are unaware and not in a position to repay the money. In certain circumstances, the business might not be
able to recover the money and the employee (or ex-employee) keeps it.
Minimum wage compliance - The national minimum wage is the lowest that a worker can be paid. You and your employees can
agree to any wage rate above the minimum, but every employee must be paid at least the minimum for every hour they work. Making a serious
failure to pay the minimum wage could lead to significant penalties. The Fair Work Commission reviews the minimum wage each year, so you
need to make sure you’re up-to-date with the latest rates. Our recent Business
summarizes the most recent changes.
Unlawful deductions - Legally, you can't deduct money from your employee's wages unless it's for a lawful purpose, is
reasonable, and the employee has agreed to the deduction in writing (e.g. PAYG, child support payments, or student loan repayments). The law
makes no distinction between not knowing what deductions are legal and deliberately breaching the Fair Work Act, so employers need to ensure
any deduction is lawful and has been discussed with the person. If you are unsure, get professional advice before proceeding.
The process of calculating pay and paying people can be complicated and extensive, but having sub-par payroll practices can be costly,
ineffective, and a major risk for your business. Having a robust payroll system can help with accuracy, automation, and record-keeping (you
need to keep accurate records of all payments for at least 5 years).
Contact your WDF Professional team member if you would like to discuss further how we can help you with your payroll processing. Phone 02
6921 5444 or email email@example.com