People, process and tech – how you can prevent wage underpayments at your business

In recent years, the number of Australian businesses found underpaying staff has grown dramatically.

Payroll professionals are now under increased pressure to get payroll right. While most cases of wage underpayment aren’t deliberate, the problem is such that in June 2020, Victoria became the first state to criminalise deliberate wage theft. In September, Queensland followed suit.

So why are wage underpayment cases increasing?

The overreliance on payroll technology

In my experience working with payroll professionals across Australia, one of the main contributors to wage underpayments is the “set and forget” approach some businesses take with their payroll technology. When underpayments occur, the excuse is often that “the system got it wrong”.

However, this is hardly ever the case. Rather, the true cause of underpayments is the people and processes surrounding the technology.

Many payroll professionals, lacking training and guided by poor governance controls, pay almost zero attention to the outputs of payroll. They simply set up the system and process payroll without checking if the outcomes are correct.

When errors occur, many businesses simply throw money at the problem, purchasing new payroll technology while neglecting the people and processes needed for a successful payroll operation.

The payroll platform they use may be the most advanced on the market. But if it’s never updated in line with changing circumstances, a small error can over time turn into a large, potentially incriminating one.

So how can you ensure a smooth and compliant payroll function? Let’s explore the oft ignored people and process considerations that can help minimise risk across your payroll function.

People – recruiting the right payroll staff and providing support

Good payroll staff are essential to a smooth and compliant payroll function. They are hard to find, however. Many are not seeking a new job because their employer does all they can to retain them.

So what should you be looking for when hiring payroll staff? It’s not just knowledge of payroll that’s important, but also their attitude and customer service skills.

The best payroll professionals don’t see payroll as simply a process, but as a function that supports the business. They understand who they are processing payroll for and are curious to investigate potential errors.

Complacency is one of the biggest causes of underpayments. Payroll professionals often follow a set routine, established long ago, and aren’t curious about what the output should be, what it is, and the variance between the two.

Many payroll professionals also lack the training required to identify problems. They are constantly under pressure to keep up with the ever-changing industrial relations landscape.

Businesses often rely on ‘on the job’ training and place little focus on equipping staff with competency-based payroll qualifications. An Australian Payroll Association survey reveals only 10% hold a Certificate IV in Payroll Administration, which we recommend as a minimum for any payroll professional.

It’s also critical for your payroll staff to have access to expert advice so they can ensure compliance. This could mean investing in legal counsel from a specialist workplace law firm and or a membership with an industry authority, like the Australian Payroll Association.

Process – establishing a governance framework to minimise risk

A robust governance framework is central to identifying and mitigating risk across your payroll function, to ensure all payroll outputs generated by your system are correct

This should enable your organisation to comprehensively understand and document your end-to-end payroll process, from roles and responsibilities to data management and any gaps in the process.

It should also provide an overview of the level of skills and qualifications within your payroll team and the technology you have in place.

If your processes aren’t carefully planned and structured, the best people and technology won’t provide you with the payroll outcomes you’re looking for. Some of the warning signs of poor payroll processes include:

• Data being handled more than once
• Many spreadsheets used throughout the payroll process
• Piles of paper in your pay office
• One person can complete a payroll from end-to-end with no need for sign off or checking
• You don’t have payroll checklists or they are out of date
• You don’t have a payroll procedures manual or it is out of date
• Your payroll benchmarks are below the average for your size and industry.

The best way to test if your payroll governance and controls are sound is to ask your payroll manager to explain their processes, and why they perform them. If their answer is “because we’ve always done it like that,” it’s a good sign your governance and controls are lacking, and a reappraisal of your processes is needed.