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What are the 6 most common employee payment errors made by major companies?



Featured | Finance

By Tracy Angwin

When we think of major companies, we often assume that they have a large team of highly trained payroll professionals working to ensure that staff are getting paid properly – however this is not the reality for many organisations.

In the last few months, we’ve seen two major food retailers come under fire for underpaying its staff members. Currently, Subway is being investigated over allegations of systematic underpayment and bullying, while celebrity chef George Calombaris’ hospitality company MAdE Establishment has admitted to underpaying 500 of its current and former workers by $7.8 million between 2008-2018.

Large companies, despite the size of the organisation and expertise level of its payroll staff, can often find themselves embroiled in payment scandals just as easily as smaller organisations. In major companies, little mistakes can often go unnoticed which can lead to bigger problems later down the track for both employees and the organisation.

A lack of payroll training and human error contributes greatly to employee payment errors. Often, this is also made more difficult due to changing government legislation and confusion over how to interpret industry awards.

These are some of the 6 most common employee payment errors made by major companies  

1.) Failing to pay overtime penalty rates to part-time employees. A common employee payment error in major companies is the incorrect application of overtime rules under certain awards, particularly with part-time employees. Plenty of organisations incorrectly apply the same rules to overtime payments for part-time employees as they do for full-time employees. However, some common employee awards – such as the retail award and clerks award – require overtime penalty rates to be paid to part timers when they work more than their contracted hours.

2.) Misinterpreting other overtime calculations. Many of the recently reported underpayments by retailers have been in part due to a misinterpretation of when overtime is payable. This includes employees who are required to get a 10-hour break between shifts and are therefore entitled to be paid overtime until they are given a 10-hour break. Some Enterprise Bargaining Agreements (EBAs) and awards refer to payments made at ‘overtime rates’. These are not necessarily overtime payments but are paid at the same rates. Often in this case, the overtime code is erroneously used in the payroll system, so the underpayment will relate to superannuation not being paid on these hours when the employees are entitled to it.

3.) Superannuation underpayments. A lot of employers don’t know the basis on what superannuation is paid on. For example, superannuation is paid on a bonus however you do not pay superannuation on overtime – which is something many employers get wrong. Many employers often fail to pay superannuation on employee payments on top of regular wages or salary. Super should be paid on any employee payment that is regarded as ordinary time earnings – this includes bonuses, leave loading (when it does not relate to the notional loss of opportunity to work overtime), payment in lieu of notice of termination and cashed-out annual leave. 

4.) Excluding commissions and bonuses from long service leave. The calculation of long service leave is another incredibly common mistake made in large companies. Often, organisations calculate long service leave based on days, when it should actually be calculated based on weeks. Some employers also forget to include commissions, incentives and bonuses when they calculate the value of long service leave. These payments must be included when long service leave is paid. The rules around long service leave differ in each state and territory, making it even more confused to be calculated and understood properly.

5.) Only paying the base rate on annual leave payments. This is a wide-spread error that Australian Payroll Association has identified across multiple organisations in the health support services and manufacturing sectors. The awards governing employees in these sectors require that annual leave payments should include the full payments owed to the employee if they had worked. This includes penalties and allowances, not just the base rate of pay

6.) Long service leave accrual. No matter which State or Territory an employee works in, long service leave is always kept in weeks – it is never kept in days or hours. If your payroll system holds long service balances in hours, it is highly likely that your long service leave accrual is incorrect. Only a full audit on long service leave will ensure a correct balance for all employees in this case, as there are so many things that affect an accrual.

Lack of payroll reviews and outdated systems are common reasons behind large payment errors. These are Tracy’s tips on how to ensure that your company isn’t the next payroll headline.

  1. Get your payroll staff trained. With legislation changes occurring every other day it is vital to ensure that your payroll staff is being trained regularly so that new regulations that benefit employees are being implemented.
  2. Review your payroll processes. A lot of companies have a ‘set and forget’ mentality towards their payroll systems which can lead to major oversights. Pay particular attention to controls and governance and consider what processes can be stopped or simplified.
  3. Find out if your technology is benefiting you properly. Look at how effectively you are monitoring employee attendance and whether your payroll delivery method is right for your business. Think about whether you should be spending time managing payroll yourself or if it would be better to outsource this task to a professional payroll service such as Payroll HQ.

Tracy Angwin is the CEO and founder of Australian Payroll Association, Australia’s leading network for payroll professionals that offers payroll advisory, training, qualifications and consulting. She is also the Director of Payroll HQ, a managed payroll service provider.