Many employers ask our payroll consulting team what the most important thing is when considering compliance requirements for payroll. The reality is there are a combination of factors and the causes of non compliance may be quite difficult to detect without actively looking for them.
Our Payroll Consulting practice regularly finds issues when conducting payroll compliance reviews that can be quite shocking for employers given that no one may have complained about an underpayment. The large underpayments we have heard about over the past few years generally relate to relatively small payroll errors, that over time and a large employee population, can lead to material payroll underpayments.
If you are a retailer that consistently pays part time overtime incorrectly or an aged care home that has the wrong sleepover rates in your payroll system, these errors can add up very quickly.
A full understanding all of the payroll compliance legislation relating to employment in Australia, will assist in identifying areas of risk or lack of governance in your payroll.
What is payroll compliance?
The terms payroll or wage compliance and alternatively wage theft, all relate to the incorrect payroll outputs from the times employees work and the conditions under which they are employed.
Some payroll errors are obvious, others require significant expertise to diagnose.
National Employment Standards
Most employees in Australia are covered by the National Employment Standards, or NES. These are the minimum entitlements for employees no matter what award or agreement they are covered by. The NES covers conditions such as annual, carers, long service, community service and parental leave, maximum weekly hours, termination, flexible working arrangements, conversion from casual to permanent and public holidays.
Both public holidays and long service leave are based on the State or Territory that your employee works and often have different rules of calculation. The value of long service leave when it is paid could change based on the employee’s historical work pattern, weekly earnings, type of payments made, where the employee has lived during their tenure, whether the payment is leave taken or paid out on termination and many other criteria depending on the State or Territory.
An employer cannot negotiate any employment conditions lower than those provided for by the NES. Employers must give every new employee a copy of the relevant Fair Work Information Statement so they understand their entitlements under the NES.
Failure to provide any of these conditions, including the necessary paperwork as evidence, will immediately make a payroll non compliant.
Awards and EBAs, the industrial instruments
In addition, the conditions dictated by industrial instruments that your employees may be covered by as well as all State, Territory and Federal leave, industrial relations and taxation laws, and you have a long checklist for payroll compliance.
It’s important to determine exactly what award or awards apply to your group of employees as these can be significantly different. Getting this step in the process wrong will potentially cause issues that can have material consequences in over and underpayments.
Employers need to consider the set of conditions that are specific to the industry and role undertaken and whether there is a Modern Award that provides coverage for the role. It may also be that an employee has their own EBA which covers the role.
These industrial instruments will determine how the employee should have their pay calculated and what payments will make up their gross pay. They could include how long an employee can work before they are entitled to overtime, when shift penalty rates apply, what allowances are payable, the standard span of hours that an employee might be expected to work within before their base rate changes, what rates they are paid, when paid and unpaid breaks are taken and a myriad of other conditions that might relate to the payroll outcomes for an employee.
Once the payroll inputs have been correctly calculated, they are processed in your payroll system. The payroll system will determine the tax treatment of each payment, whether superannuation is payable, how each payment might contribute to the accrual of annual, carers and long service leave and produce the required outputs for your finance system and Single Touch Payroll.
However, a payroll system will only calculate what it has been set up to calculate. That is, if a configuration is incorrect, not paying super on an element of pay that is superable for example, it will incorrectly underpay that superannuation every time, for every employee. Over an employee population, across many years, these seemingly small errors can become materially relevant. In addition to this, there can be consequences in terms of fines, contrition payments and negative media exposure.
What is a payroll compliance specialist?
Many employers are now addressing this risk by adding a compliance role to the payroll function. The purpose of these roles is to put processes in place to avoid payroll errors and check payroll outputs on a regular basis to ensure ongoing compliance.
In addition to this, all employers should have annual payroll compliance audits conducted by an independent third party payroll expert with experience in awards and payroll legislation. This is in addition to the standard program of internal and external audits that might already be in place to identify any incorrect taxation or governance weaknesses.
Specialist payroll consulting – we can help
The team at Australian Payroll Association have experience in solving payroll problems of various complexities in most industries and for all employer sizes. We immerse ourselves in the payroll industry which allows us to deliver a broad range of payroll capabilities.
We are not audit consultants doing payroll, not tax consultants doing payroll or HR consultants doing payroll. We are entirely focussed on diagnosing, solving and preventing payroll problems.