We often see problems with payroll, and the employer is often not aware of it.
Payroll mistakes discovered by the Fair Work Ombudsman or the Australian Taxation Office can have significant implications costing significant fines, interest and legal fees. Your payroll must be 100% compliant because the business owner is ultimately responsible.
Payroll errors erode employee confidence and impact morale and productivity. In 2018 payroll underpayments were estimated at $3.6 billion.
The most common errors
- Underpayment– Employers not keeping up with award conditions and pay rates. It can be well worthwhile engaging a Human Resources consultant to review your work contracts and pay rates and conditions.
- Overpayment– In 2020, almost 70% of audits by the Australian Payroll Association disclosed costly overpayments. Employees are often unable to repay the overpaid amount. These errors erode employee confidence.
- Minimum wage conformity– Serious penalties apply where employers do not meet the minimum wage condition. The Fair Work Commission publishes the revised minimum wage every year, and you should subscribe to their update service to be sure that you are informed once the minimum wage increases.
- Unlawful deductions– Legally, you are not permitted to deduct money from an employee’s wages unless the law permits, it is reasonable, and the employee has agreed to the deduction in writing.
- Annual Leave– we often see that Annual Leave taken by employees has not been recorded correctly in the pay system. This is very costly for employers. Employees that are eligible for annual Leave accrue that Leave as they work. Every week working, they usually earn or accrue just over 3 hours of Annual Leave, and the employer’s liability or obligation to pay them increased. When employees take holidays, they use up that Leave and the liability for the employer reduces. Failing to record annual Leave correctly causes the liability to increase when it should decrease.
- Pay runs: Errors in pay runs are widespread because the systems are more complicated than they appear. Small business owners often run the pay run simply to calculate the net pay that they need to pay the employee. Employers often make a mess of this, and it is difficult and time-consuming to correct.
We understand that small business owners often find themselves paying wages after hours and can’t wait for their bookkeeper to calculate the net wages payable. So they enter the pay details in their bookkeeping system, making several errors, just to work out how much to pay their employees. This causes a nightmare, because payroll errors are not easy to correct. Check out our Easy Payroll System for a cost effective answer to this problem.