Even unintentional pay errors due to complicated payroll processes are a huge risk for businesses. Traceability is the key.
In 20 years working with all manner of companies, from multinationals through to small-to-medium enterprises and government agencies, I’ve found very few pay employees consistently and correctly. And most of the time, this is not intentional.
For just two pieces of evidence of this collective withholding, we can look to recent admissions from a leading supermarket chain and the Reserve Bank that they had been unintentionally underpaying staff because of payroll issues.
So pressing is the issue that in 2021, wage theft became a criminal offence in Victoria, with repercussions ranging from backpay orders to jail time. More recently at the federal level, the Department of Employment and Workplace Relations proposed that the maximum penalties for violations such as wage theft increase by five times.
So, why are Australia’s organisations increasingly and in most cases inadvertently making these mistakes and risking their reputation, staff loyalty and trust, and entire business?
The Fair Work Commission provides awards governing how employees across industry sectors are treated and paid, keeping organisations in check and ensuring they remain compliant.
But this isn’t the same as what ends up in people’s pockets. Too often, questions to managers about where these agreements are located, and how they inform employees’ payments, are met with blank stares.
This is often due to varying interpretations of the industrial instruments and how they inform day-to-day payroll decisions.
Take, for instance, a manufacturing organisation with multiple plants and physical locations working 24x7 that employs shift workers operating under the same agreement.
In one location, workers who work across midnight might be paid night-time penalties based on the day they start the shift, and at another location based on the day they’ve finished the shift.
This decision is often at the discretion of individual managers, who approve the times based on how they’ve always done it. There is often also an inconsistent set-up of systems automating these payments.
Managers might also round times down or up to the closest five or 10-minute mark on their discretion, rather than the organisation automating and applying a consistent rule across all plants and locations.
It’s easy to see how staff in one location would accurately earn overtime, and consequently annual leave and superannuation accruements, and others would miss out.
Adding to this is the complicated nature of payroll, which ultimately makes payment decisions more-so than managers who are aware of what happened on the shift. A recent study by the Australian Payroll Association also found almost a third of payroll professionals plan to leave their jobs in the next year, with payroll processes and technology identified as the biggest challenge.
The same study found burnout is common in these roles, with a lack of leadership and understanding of payroll the key contributor.
While there’s no silver bullet to remedy these kinds of discrepancies, there is a crucial step that, in my experience, 99 per cent of Australian organisations ignore: creating traceability between the industrial instrument and how employees are paid.
Organisations need an intermediate step that sits between the industry award and their payment system, explaining how and why decisions are made, and ensuring a level of consistency and accountability.
In the earlier example, traceability would clearly delineate why workers were paid at certain times, who made this determination and why they made it. This not only allows companies to zero in on the source of underpayments, but forces managers to be conscious of, and accountable for, these decisions while reading from the same playbook.
This layer should account for different types of employment, such as part-time, full-time, or casual, as well as different industry sectors, given the different ways these employees work and account for their time. Employees, managers, industrial relations (IR) professionals, HR, senior leadership, and payroll should also be encouraged to familiarise themselves with the entitlements of the industry award under which they sit.
Traceability processes should be agile and regularly updated and adapted to suit shifting workplace trends, for instance the hybrid arrangements that have been normalised primarily in knowledge worker-based careers over the last few years. Compliance rules are constantly being updated and few employers stay on top of this by using services that track these changes.
While it’s true many employers aren’t aware of the need for this additional layer, among those who are, there is a degree of resistance to introduce and maintain it, particularly in large organisations with multiple awards and business units that would require a costly and time-intensive overhaul of processes.
But given repercussions range from a loss of trust and respect, through to large sums spent on reparations and legal fees, and even jail time, putting it in the “too hard” basket is no longer an option.
As we approach the federal budget and economic pressures continue to tighten, it’s imperative business leaders provide people with their rightful entitlements. We all lose when underpayment runs rampant and the trust between employers, workers and payroll is broken.