Avoiding the Underpayments Minefield: A Guide for Payroll Managers

What do payroll managers need to know to navigate the underpayments crisis?

To the broader economy, wage minimisation, underpayments and wage theft have significant effects. It reduces consumer demand by repressing spending power and restricts competition by giving organisations that break the law an advantage over those that comply with the rules – and an incentive to break the law themselves.

Beyond deliberate wage theft, many underpayments are happening because payroll managers are misinterpreting the requirements of the various legislation, awards, agreements, regulations and contracts governing each employee.

Most businesses are not doing this on purpose, with many of these errors being caused by accident or having outdated information in their systems. This situation is exacerbated by the often-inadequate training given to payroll managers, who tend to be respected and experienced professionals, whether they’re payroll specialists or not, with a direct report to c-suite.

    Lost in translation
    Many payroll managers in Australia learn how to operate a system on an ad-hoc basis with their colleagues, or through initial supplier training, rather than a formal training in payroll as a discipline.

    In the 2019 Australian Payroll Association survey of 520 payroll managers:

    • 90% found interpreting legislation or awards confusing or contradictory
    • 25% in SMEs seek government advice
    • 6% in large businesses seek government advice.

    It’s almost impossible to accurately interpret and stay up to date with legislation and regulations without ongoing training for payroll staff, and it’s even more problematic for companies without payroll specialists, which usually doesn’t happen until they pass the 100-employee mark.

    The current underpayments crisis is a solid justification for increased training expenditure in payroll, and for Australian payroll managers to require certification and professional oversight (more like accountants).

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    Decision-makers take responsibility
    The Senate has voted to refer a wide-ranging inquiry into wage theft to the economics references committee, which will consider how workplace laws can better protect workers, if supply chain liability should be extended, and whether wage theft is seen as ‘a cost of doing business’ by Australian companies.

    Attorney General Christian Porter has proposed adding the responsibility to ensure their companies pay staff correctly to the list of directors’ duties in the Corporations Act, which would allow the Fair Work Ombudsman to pursue banning orders if they failed that duty. In discussion papers he has proposed increased penalties for incorrectly classifying employees as independent contractors, although criminal penalties would be confined to cases of serious, deliberate and systemic wage theft.

    John Howe, Director of the University of Melbourne School of Government was quoted by HRM Online in July 2019: “The corporation itself can’t be put in jail, so who should be held to account for criminal penalties? It can be difficult to prove who arranged the underpayments … In a corporate governance structure, it’s the directors and senior managers who are ultimately responsible for what’s being done at all levels of the company.”

    Although it’s the commercial entity that will be penalised, or top tier management, if payroll specialists are asked to do something illegal or unethical, like deliberately implementing inaccurate pay rates, what are their obligations and options?

    HR and payroll managers are obliged to tell their employer if they’re transgressing but they are also their employee and want to maintain their trust. If they have tried their best to change the practices, and senior management reject their observation, will they be complicit under the proposed laws if they take no further action?

    Prove your compliance
    The new ‘reverse onus’ provisions of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 means that the employer must disprove that there has been an underpayment, regardless of whether the complainant worker has trustworthy evidence of underpayment.

    A paper trail is important for payroll workers to protect their professional integrity, so it’s more important than ever for payroll workers to ensure their employers review their pay obligations and keep accurate and up to date employee records.

    Those managing their own payroll need to make sure they use all information available to support compliance. The Fair Work Ombudsman provides multiple tools for reviewing compliance, for free, and provide phone and email support for small businesses as a priority. Additionally, they can liaise with their payroll system or service provider regularly to ensure award requirements are kept up to date.

    In a situation where blame can be distributed or diverted around a company structure, prosecutions won’t necessarily return money to those who earned it or solve the underlying issues. Practical action is needed from those with responsibility for payroll to become an informed advocate for compliance.

    Download the Bullseye!: Your definitive guide to Underpayments Whitepaper

    In this whitepaper, we analyse the current underpayments crisis in Australia, what it means to you and your business, and provide step-by-step guides to avoiding, detecting, fixing and preventing underpayments.

    Download the whitepaper to:

    • Understand what underpayments are, whether you could be impacted, and how to fix them
    • Mitigate your underpayment risk with our complete 7-stage guide to underpayments
    • Get your payroll right every time with our compliance tips and advice
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