Australia - 7 reasons for company payroll scandals

In recent memory several major companies that have made payroll errors that have impacted thousands of employees. Seven key mistakes and oversights are often to blame, Human Resources Director reports.

The $2million error by Lush Cosmetics last year, the $43million error by Rebel Sport this year, the $1million in underpayments by Maurice Blackburn and more than $1 million in underpayments by Rockpool are only a handful of memorable examples.

Reportedly such errors are often identified and corrected by payroll expert Tracy Angwin at Australian Payroll Association (link from HR Director’s original reporting). Ms Angwin says underpayments are more common than one might think, “The various clauses across the 122 employee awards in Australia, as well as Federal and State-based legislation, are extremely complex.”

At times even the relevant Government bodies have not been able to answer our questions when we ask for clarification. In addition, legislative changes occur weekly, continued Ms Angwin.

“The errors behind the scandals are often a result of inadequate training given to payroll managers,” she said. “The Australian Payroll Association’s 2019 Benchmarking Report reveals that the average payroll manager has just 2.6 days of training a year. Yet they are responsible for millions of dollars in payments and ensuring those payments meet the law.”

The payroll expert has revealed the most common payroll mistakes and oversights usually leading to such scandals:

Incorrect calculations in overtime provisions

Errors are made when companies do not consider every ruling on overtime for employees. Many employee awards have multiple sections on overtime, for example in the ‘overtime’, ‘breaks’ and ‘part-time work’ sections. One commonly overlooked ruling is overtime. Employees must receive a minimum of 10-hour breaks between shifts. If their break is lower than 10 hours, under some awards - like those governing social service employees, hospitality and aged care - employees must be paid overtime rates thereafter, until they receive their full 10-hour break.

Underpayment on termination

Payroll managers failing to refer to the Fair Work Act, in addition to the relevant employee award, is the most common mistake made. The Act entitles employees over 45 - who have had at least two years of service with the company - to receive one additional week of notice upon termination.

Failure to pay overtime penalty rates to part-time employees

Many organisations mistakenly apply the same rules on overtime payments to part-time employees as to full-time employees. Yet some common employee awards - like the retail award and clerks award - require overtime penalty rates to be paid to part-timers when they work more than their contracted hours. This is where underpayment errors are frequently made.

Superannuation underpayments

A number of employers fail to pay superannuation on employee payments on top of their regular wages or salary. Superannuation should be paid on any employee payment regarded as ordinary time earnings. This would include payment in lieu of notice of termination, leave loading, bonuses and cashed-out annual leave.

Paying only the base rate on annual leave payments

This error has been identified by the Australian Payroll Association across multiple organisations in the manufacturing and health support services sectors. The awards governing employees in these sectors require annual leave payments to include the full payments owed to the employee had they worked. To include penalties and allowances, not just the base rate of pay.

Excluding commissions and bonuses from long service leave

When they calculate the value of long service leave, too many employers do not include incentives, bonuses and commissions. These payments should be included when long service leave is paid.

Lack of payroll reviews and outdated systems

One major oversight contributing to all of the above errors is failing to review the accuracy of payroll systems alongside legislative change. So those new regulations which benefit employees are not implemented.