Every time you look at the news, there seems to be a new case of wage underpayment involving another of Australia’s most well-known brands.

Retail giant Coles has identified underpayments of $20M across its liquor and supermarkets and Target staff being ripped off to the tune of $9M, taking the Wesfarmers Group total wage underpayment to $24M.

Celebrity chefs, Heston Blumenthal and George Calombaris have also being caught out underpaying staff, with Calombaris placing his restaurant empire into voluntary administration. Calombaris has also had to put his family home on the market, which demonstrates that the costs of these errors aren’t limited to only the amounts underpaid to employees and any fines levied – the reputational damage can be catastrophic. These issues are not just in the hospitality and retail industries either.

So what allows these predicaments to develop?

Underpayments to staff aren’t usually intentional. Rather, there are a number of more complex factors:

• The awards landscape has undergone significant change since 2010. Transitions between and changes in State and Federal awards, coupled with the existence of Enterprise Bargaining Agreements, have created an overly complex regulatory environment when it comes to wages and conditions.
• The complexity of individual awards can lead to confusion in their application. Rules about the loadings and allowances for commencing or finishing a shift before or after certain times, for instance, can be intricate, as are those for allowances when shortened meal breaks or no breaks at all are taken.
• Employment terms and conditions are constantly evolving. Recent examples include the introduction of leave for casuals, or superannuation being applied to annual leave loading in certain circumstances. These decisions have been made using case law, yet the legislation is yet to catch up and provide definitive interpretations.
• Technology has made payroll much easier. However, over-reliance on technology can leave you vulnerable to its limitations. If the technology can’t collect all the required information in the best format, it can’t calculate an employee’s payroll, allowances and loadings without significant human intervention.
• Many business owners lack of knowledge about payroll and awards and fail to obtain the necessary third party advice. Perhaps understandably, focus is placed on more “important” things, like marketing, business development, and generating sales and profits. Yet, as the George Calombaris case shows, failure to properly deal with awards and conditions can bite a business badly.

Our Experiences

For one of our clients who used an industry-specific payroll system (which the industry body maintained), we recently discovered that their payroll was being calculated incorrectly by the system. Fortunately, the system was overpaying employees. The issue was able to be rectified and cost savings realised, even if returns and profitability were temporarily affected. Of course, you’ll never see the news reporting on an employer overpaying its employees, but it’s a reminder that there are two sides to getting payroll wrong, both of which can cost a business.

After reviewing simple and complex payroll structures and awards for organisations ranging from one employee to 1,500 employees, our advice is that business owners, executives and managers need to pay closer attention when:

• they have employees on complex awards, with various allowances and loadings, or employees covered across multiple awards;
• they have staff working overtime;
• they lack a dedicated and specially trained payroll resource with the required understanding of the intricacies of the awards applicable to their employees; or
• owners and managers are unsure how payroll is completed and checked before employees are paid.

If you any of the above apply to your business, be prudent.

Protect your business by giving Paul Quealey, our Audit Partner, a call directly on (02) 4969 6600. We can work through your risks and concerns, and help you build an efficient payroll solution (in-house or outsourced) specific to your business.

When you can trust that your staff are being paid properly, you can concentrate on making your business more successful.