Anyone who knows me, will have heard me talk about my frustration when employers blame their payroll software systems for payroll errors, especially when staff have been underpaid over a period of time.
Just like Bill Gates won’t take your complaint that your incorrectly set up excel formula hasn’t given you the outcomes you expect, nor should your payroll software supplier take responsibility for outcomes when your payroll configuration is incorrectly set up to pay your employees.
I was reminded this week of the consequences of this reliance on software to (magically) make payroll correct and compliant, when we delivered a substantial report to a client who had requested a payroll process review.
The employer has used their current software supplier for some time to manage their payroll of several thousand employees. Keen to ensure the system was working as it should be, they had asked the payroll software supplier to do an audit on the payroll setup. What the payroll supplier delivered was a very short report which outlined the functionality that the client was not using in the system. It also included the costs for the supplier to set up the additional features for them.
Here’s the fundamental disconnect. The client wanted a process and compliance audit, to ensure they were paying their employees in accordance with all legislation and in the most efficient manner possible. The payroll supplier, while knowing exactly how their system can work, is not responsible for the way the employer was using the software in relation to interpretation of industrial agreements and industrial and taxation law.
Furthermore, the supplier is unable to legally, unless they are a Tax Agent or BAS Agent, to provide advice on payroll setup in relation to tax or superannuation. Notwithstanding that the supplier perhaps didn’t understand the client’s requirements, and perhaps should have not accepted the work, the fact remains that it is entirely the employer’s responsibility to understand their employment obligations and ensure the payroll system meets them.
This is not a ‘system issue’.
So, you can imagine our client’s surprise when we delivered a comprehensive 33 page report that outlined a large number of compliance issues and a series of unrelated, ongoing overpayments caused by incorrect interpretation of industrial agreements.
The client’s payroll department had fallen into the ‘set and forget’ trap in relation to payroll legislation and systems.
Some of the financial outcomes of the report were that in the 8 months of this year to date, overpayments (yes, overpayments, not underpayments) related to all areas of payroll including overtime, leave loading, annual leave, leave without pay, leave accrual, allowances and superannuation.
Our auditor estimates the value of these overpayments to be more than $1,000,000 so far this year.
Other issues we found put the employer in breach of both the Fair Work Act and the Income Tax Administration Act. Overpaying in other areas does not let you off the hook with the regulators.
What would your organisation do with an extra $1,000,000? Product innovation, delivery of charitable services, employ more staff, upgrade IT systems, staff engagement initiatives, employee training or customer service initiatives? All those things that companies say they don’t have money to do, may actually be funded by looking closer at your payroll function. Perhaps it’s worth taking a look.