Top Five Causes of Salary Underpayments & How to Avoid Them

Payroll is often the single biggest business expense and so the risks are large.

With recent changes like single touch payroll and various temporary COVID-19 related government stimulus and incentives being rolled out, it’s important to get it right and easy to get wrong.

The Fair Work Ombudsman oversaw a record last financial year, recovering over $123 million in underpayments owed to over 25,000 Australian workers.

Many reasons were given by employers as to how the $123 Million could have occurred. The five most common issues identified by the Fair Work Ombudsman during the 2019/20 financial year were as follows:

1. Manual processes for recording hours of work

2. Failing to apply an enterprise agreement to all the employees it covers

3. Failing to implement all the terms of a new enterprise agreement

4. Applying annualised salaries that don’t cover the award rates for all hours worked

5. Failing to undertake annual reconciliations where required

In a recent update by PWC’s Payroll consultant Rohan Geddes, Rohan noted that timesheets and annualised salaries stood out as the main stumbling block and recommended actions to reduce the risk of underpayment by these means.

His experience has shown him paper based recording of time and attendance can easily lead to inaccurate and absent records that exposed employers. The switch to electronic recording systems would greatly reduce these occurrences.

For underpayment of annualised salaries, Rohan said it was important for employers to still capture essential data like working hours and employer classifications and do an annual reconciliation to ensure the employees are still better off overall.

So if your payroll systems and processes are ancient and in need of review, add payroll to your agenda next time you visit your accountant.

Peter Forbes
Business & Industry Development Officer