The underpayment – or indeed any kind of incorrect payment – of employees is a shockingly common issue in all industries, and it can cause big problems for employees and employers alike.
Underpayment in Australia was five times more common in 2021 than it was in 2017, with 22% of workers reporting being underpaid at some point.
It is hard to make sure everyone is getting paid correctly, and it gets harder the bigger your organisation is. Most of the businesses incorrectly paying their people aren’t doing it out of bad intent, there are simply issues within their systems that they’re completely unaware of.
A complicated workplace mixed with complicated awards means that payroll can get messy. As such it’s crucial to be aware of what gaps there might be in your technical systems and human processes that could allow your people to be underpaid, so you can make sure to prevent it.
Where can gaps form in your payroll systems?
In recent years, technical payroll systems have become more robust as technology advances, and payroll errors due to incorrect interpretations of awards have been reduced.
With more powerful technical systems and more support available to assist with the interpretation of awards, why is incorrect payment increasing and not decreasing as you might expect?
It needs to be remembered that technical systems don’t exist in a vacuum. The interactions between the technical systems and the humans who interface with those systems are key in understanding where holes can form.
You can think of the people interacting with your technical payroll system as just another section of the whole business payroll system that needs to be integrated effectively. If there are issues with integration, data can be misinterpreted, lost, or corrupted as it’s transferred between systems, and this is where the biggest issues can arise.
So how do you make sure your people are an effectively integrated part of the whole business system which delivers the payroll outcome?
The key to make sure your people are integrated properly into your technical payroll system is to have proper processes in place.
These processes will guide all employees in their interactions with the technical payroll system to make sure all necessary data is collected. Particularly important is making sure anyone who works with rostering or timesheets are working in accordance with proper processes, as this data must be accurate so that the technical payroll systems can perform correct calculations.
Bad data in means that the outcome of any calculation will be bad.
What happens if, for example, a manager asks an employee to work through their break because they’re understaffed? If your processes don’t include your people recording the time of their breaks to be added into time sheets, then your payroll systems aren’t going to be able to account for this.
The very foundation of this issue can be that the manager didn’t understand the compliance implications of their simple request to employees.
The organisation must develop a culture embracing the importance of process to achieve consistent outcomes and payroll compliance (amongst other things). Everyone needs to understand that consistent and proper processes will ensure your systems have all the data they need to pay people correctly. Not understanding the reason why following consistent process is important is a massive cause of bad payroll outcomes.
It is easy to think that this is a case of ‘technical systems don’t underpay people, people underpay people’, however that’s not quite correct.
If your people are doing something that’s causing incorrect payment, it’s likely because of the processes they’re following. The focus should always be on fixing the processes that made it possible for that to happen, rather than fixing issues with specific people.
Most organisations are bad at maintaining documentation of their processes. This tends to be because they see it as a waste of money – “everyone in the payroll team knows how we execute payroll” is a common statement.
Our experience shows that NOT everyone knows how to do every part of the payroll execution, and more importantly, even when people think they know how to run payroll, everyone’s understanding of exactly what they need to do is different.
Interpretation of Awards and Errors in Data
Whilst incorrect payment caused by faulty technology in the interpretation of awards is generally on the decrease, it’s still important to make sure you’re aware of how these aspects of payroll execution can cause issues.
The interpretation of awards tends to be most problematic for small businesses that can’t afford legal advice.
There are lots of organisations and resources in the market that can help make sure you’re paying people based on correct interpretations of the relevant awards, but these tend to be expensive and time consuming, and they can’t offer a guarantee of the accuracy of their interpretation either.
Not only this, but the implementation of your interpretations of awards into your payroll software can be difficult, especially as your interpretations change in the future due to legislative change or legal precedent.
Fortunately, there are solutions arising for these issues. At AgileXperts we work with Payroll Standard®, which is an effective solution for integrating your award interpretations across systems, even as they change.
Unfortunately, there’s no foolproof way to make ensure your interpretations are correct, so the next best thing is to ensure you apply the same interpretation consistently across time and across different platforms. That’s what Payroll Standard® delivers.
Making sure you have the proper resources and legal support when interpreting awards and integrating them into your systems is critical in mitigating the risk of underpayment.
There’s always the potential for issues to arise in the software itself, and for that to lead to incorrect payment, however, this is uncommon and difficult to miss.
As long as each of your individual systems is robust and well-designed, they’re going to be able to correctly handle the data they’re given to ensure the correct pay.
This means that the main weak point that can cause payment issues is the data your systems receive.
Issues with data being transferred between systems tend to be obvious – if data is being corrupted between one system and the next, it’s usually very easy to discover. Working with a systems integrator is likely to prevent these issues from occurring in the first place.
Therefore, the weakest place in any of your technical systems is the data they’re being given by your people and processes.
Incorrect payment could be caused by anything from issues with timesheets and the recording of hours to incorrect data in your HRIS systems, leading to people being paid based on the wrong award classification.
Bad data integration between HRIS and Payroll systems can also lead to real challenges in tracing Superannuation accounts – a massive problem that will only escalate in importance in the near future.
If your technical payroll systems work, and you have the culture and processes to ensure they’re being given the correct data, then your employees are almost definitely going to be paid correctly.
Therefore, the best way to make sure your whole business payroll system is delivering a great outcome is to understand, document and refine your processes.
Making Sure you Don’t Miss People Being Underpaid
So how can you put this all into practice to make sure nothing slips through unnoticed? First of all, it’s important to make sure everyone is focussing on compliance just as much as their other stated outcomes.
For a lot of people, meeting compliance requirements doesn’t feel as urgent or as important as operational targets. It can get left by the wayside.
Making sure your people, especially managers, are trained on maintaining workplace compliance, and have channels of communication for checking how they should respond to situations, is crucial.
This allows for high reporting standards to be maintained throughout your organisation, and for correct processes to be followed consistently, so things don’t go unreported and missed.
It’s also helpful to be aware of the risks – the operational situations where things are most likely to go unnoticed. Every piece of data you’re not documenting around working times, rosters, and what award entitlements your people are eligible for constitutes a risk of underpayment.
For example, if you’re not recording break times for all employees, that creates a risk of things being missed and people being paid incorrectly, as we showed above.
Along with this, any data in your systems that doesn’t have processes in place to ensure its accuracy also creates a risk.
Once you’ve identified potential risks, you can work out how to mitigate them. In practice, this can look like having checklists to verify the collection of all relevant data, or creating data maps that allow the source of any incorrect pieces of data to be found, so the root issue can be corrected.
Finally, a lot of underpayments can be avoided by continuously checking and improving processes.
Businesses shift over time, and processes will often need to be updated. Making sure your teams are always checking on their processes and how they’re performing for your organisation means that when something stops working, it will get fixed promptly.
When issues are noticed it can be tempting to simply find a simple solution that will fix that single case, however, this is just putting a band-aid on the issue. It’s always best to find the root cause of any issues that are noticed, to make sure it doesn’t cause other problems in the future.
Payroll can get incredibly complicated, especially for large companies, however, it’s essential to ensure everything runs efficiently and accurately. This way you can avoid incorrectly paying your people, and the massive follow-on issues that can cause.
In the end, whole business payroll systems (inclusive of people, process and technology) are critical within the running of your organisation, so making sure they’re working the best they can help everything run smoothly.
Businesses can email email@example.com or call 1300 287 213 for free first-step advice on how to ensure your payroll processes can safeguard your payroll compliance. Follow us on Linkedin or sign up here to receive our articles direct to your email inbox.