You don’t want to be caught underpaying staff, for all the obvious reasons. But inadvertently overpaying staff can also lead to expensive consequences.
There are so many things to consider when running a business that it makes sense to automate as much as possible. But according to Tracy Angwin of the Australian Payroll Association, employers should beware the ‘set and forget’ approach when it comes to payroll. The rules can be complex and if you’re not thoroughly on top of them, you could end up putting yourself and your staff through a lot of pain.
Follow along with the transcription below
Heather Dawson
From BE Media Production, this is Business Essentials; practical advice and ideas to grow your business.
Peter Letts
Welcome to this episode of Business Essentials podcast. I’m Peter Letts. Who hasn’t noticed the almost regular procession of businesses these days being caught out for under paying staff? Let’s think hospitality for a moment. And while certain high profile names and associated businesses have been the latest to take a public thrashing, how easily could the rest of us be caught out if we don’t pay sufficient attention to our payroll function? And according to Tracy Angwin of the Australian Payroll Association, we could just as easily get caught out overpaying stuff, not so shameful perhaps, but with nonetheless expensive consequences too. First, the perils of short changing staff. If hospitality has been in the spotlight recently, is the problem much wider, and if so, why? Tracy Angwin answers those questions from Heather Dawson.
Tracy Angwin
I think it is really much wider. And generally these issues are a symptom of the sort of set and neglect mentality, no matter what size the business is. Employees and payroll managers tend to set up a payroll system once, and they never look at it again. So, often that not checking that it’s calculating correctly in the first place is what causes these problems. And to be honest, hospitality isn’t any more difficult than many other industries, retail, healthcare or other complex industries. But I can see how it happens. Employers have plenty of other things to concern themselves with when running a business. So if the payroll platform isn’t burning, and they’re not getting employee complaints, it tends to be an area that can be ignored. And there is also the wider issue that affects these problems, which is the training and the qualifications of the people actually running the payrolls. We know that 10% of people working in payroll have a competency based payroll qualification. And we actually did at Australian Payroll Association, a recent survey, which showed that two out of every three managers admitted that they didn’t have the skills or the up to date training that they needed to do their job in a compliant manner. So, these newspaper headlines are definitely indicative of a much wider problem.
Heather Dawson
Well, you’d like to think that business owners are making honest mistakes. But in your experience do some employers actually say a little bit closer to the wind when it comes to wages or ignore the rules altogether and hope to get away with it?
Tracy Angwin
Honestly, most of the payroll audits we do, especially with employers with more than say, 50 staff are honest mistakes, normally born out of ignorance. What we find is when we find a big underpayment the client is normally genuinely horrified of what we find. So it’s worth pointing out too that in more than 50% of the payroll audits that we conduct, we actually find overpayments. We did a recent audit on a Victorian charity for example, that found over a million dollars of overpayments and actually no underpayments in that case.
Heather Dawson
Do you think complexity in the roles is part of the main problem here or simply not paying enough attention to the rules.
Tracy Angwin
Look, it’s a bit of both. Payroll’s definitely complex, but from my experience, most employers are actually trying to do the right thing. It’s not just the awards that make Australian payroll complex. It’s, you know, these federally based leaves such as annual leave and personal leave the state based leaves, such as long service leave, which is different for every state and territory. There’s superannuation, there’s determining what elements of paid or even pay superannuation on, there is leave loading, there is how to tax termination pay, you know, the list is really, really long in terms of complications around payroll. And that’s why I’m a big advocate, especially for smaller businesses to either get really good advice, or actually find a fully managed payroll service that can take this off their hands.
Heather Dawson
Yes, because the courts don’t look favorably on employers who underpaid staff these days, do they? So what sorts of penalties apply?
Tracy Angwin
Thats certainly right. They definitely don’t look kindly on this. And also the interesting thing is here that ignorance is no excuse. The penalties can be very large that. Currently a maximum of $630,000 for employers per contravention, and a maximum of $126,000 for an individual per contravention, now they’re maximum figures. And they’re for serious contraventions. But if you had 20 employees that are underpaid, that’s 20 contraventions, so the penalties can be very high. They’re also on the spot fines for infringement for non compliance, which are much less but there’s still $6,300 per breach for an employer and $1260 for an individual so they can also add up. And an example of this might be a fair work inspector who wants to, he just turns up and wants to see your records of when an employee works. Now if you can’t show them that you risk an on the spot fine. And that is what fair work inspectors are doing every day. Super penalties are a little different. The fines that apply aren’t as high. However, the fines and the fees and the admin charges and the back paid super in interest are not deductible. So it can really hit the profitability of a company very quickly if you get superannuation infringements.
Heather Dawson
So for small business operators with their own in house payroll function or maybe they’re just doing it themselves. What’s your advice to ensure they get things right?
Tracy Angwin
Honestly, my advice is to get right for small businesses to find themselves a managed payroll service that they can outsource the payroll to. Important to make sure you find one with qualified staff, important that they’re locally and regularly trained, and also that are happy to include advisory with their service, a lot of payroll outsourcing is just the physical processing and if they get it wrong, they’ll say, hey, we just did what you told us to do. So you know, it’s important to find those three things qualified staff, locally trained, and with advisory.
Now on a related issue, Tracy, you’ve just mentioned the issue of overpaying staff and you mentioned that charity group, but surely this doesn’t happen as often as underpayments.
The thing with overpayments is that you’re unlikely to be advised by your employees that it’s happened and that’s not necessarily out of any malice. It’s just that they assume that the employer is correct when they’re making an overpayment. They’ll say, oh, they didn’t realize that I got paid that much for that. Oh, well, that’s nice. But unless its a huge one. Like a few years ago, an employer in Sydney overpaid an employee $3 million, which they noticed, you know, oftentimes the staff don’t notice. But the problem is over a large employee population, overpayments can add up quickly and, the Victorian charity million dollar overpayment, just related to how particular allowance was being treated. And it wasn’t a big amount, but it was something that employee might not even notice, but over several hundred staff it added up to a really large amount.
Heather Dawson
So what are your rights as an employer if you wanted to reclaim the money that you’ve overpaid?
Tracy Angwin
Well, this is often tricky, because it’s purely a matter of negotiation with the employee, you need to come to an arrangement to have the overpayment repaid. And an employee may or may not be willing to do that. If you can’t come to an agreement, then legal action is your only option. But if you’ve got an overpayment of $2,000, but over 500 staff that’s much harder to manage. You know, one employee may have realized they’ve been overpaid, and they’ve got a savings account and they have it available to repay, and another employee may have just spent it and the one that spent it could suggest to you that they repay $5 a month for the next, you know, 400 months. And there’s actually very little you can do about that. The one thing to really know about this is that you absolutely cannot deduct overpayments from someone’s pay without their written agreement. In fact, the legislation specifically says that the employer needs the employees’ written consent, and that the deduction must be principally for the employees’ benefit. So obviously repaying an overpayment isn’t principally for the employees’ benefit and it benefits the employer. So the best way to recoup an overpayment, which is a bit of a pain in the neck for the employee, but it’s the best way to do it is actually arrange for the employee to repay directly using a bank transfer or not from a deduction out of future payroll earnings.
Heather Dawson
And if the employee is really uncooperative in terms of repaying any money, you say, be careful not to sack them. Because you could end up in court.
Tracy Angwin
That would be a very fast way to end up in court, yes.
Heather Dawson
So your best advice to employers looking to correct overpayments, then?
Tracy Angwin
Well, you can’t like say you can either make individual arrangements with each of the employees or to be honest, you can just write the overpayment off. In fact, the hardest thing that we find when we’re advising our clients about overpayments is actually having to tell the employees that they’ll be now getting less money now that the overpayments’ been corrected. So in every single case that I’ve been involved with, to date, the employer essentially tells the employee they’ve got good news and bad news. The bad news is, is that for the employees that we’ve discovered that they’ve been historically overpaid, but the good news is that the employee has decided not to recoup the money. So that’s normally how it plays out. I know obviously, the bad news is ongoing as the employee will now get less payed than they’re used to now that they’re being paid correctly. But it’s very difficult to say to someone you’ve been paid incorrectly, it’s our fault. You’re now going to feel like you’re paid less and we want the money back. So I’ve not worked with any medium or large employer that has actually tried to recoup the money that’s been historically overpaid, unless it was the example of the $3 million. Clearly that got recouped. But typically, with the long standing overpayment, the employer just writes it off and communicates as such to the employee.
Peter Letts
Tracy Angwin, Australian Payroll Association, and that ends Business Essentials podcast. So you don’t miss out on future episodes, why not subscribe? And if you found this valuable, we’d love you to leave a review. For further information about us or if you’d like to listen to more interviews like this one, visit businessessentials.com.au. We hope you’ve enjoyed Business Essentials podcast. I’m Peter Letts. Thanks for listening.
This Business Essentials podcast has been produced by BE Media Production. Building engagement and adding value through quality audio communication.