Are you at risk of underpayment of wages?

Wages Wooden Blocks

The underpaying of wages is a common issue in many industries. Awards & regulations are complex and confusing often resulting in business owners not paying their wages correctly.

This has gained a lot of media attention recently but it has also highlighted how critical it is to ensure you’re processing your business’s wages correctly.

A typical payroll process follows a sequence of regular routine tasks that result in the payment of wages to your employees.

At a glance the process is:

  1.  Employee clocks in and out using a manual or digital record.
  2. The supervisor reviews this record, allocates against work departments, makes adjustments and exports/sends records to payroll.
  3. Payroll officers process pay run using guidance material to calculate penalties, loadings and allowances.
  4. Leave and other additional adjustments are processed
  5. Responsible Manager reviews proposed payments, including deductions, pay rate changes and terminations.
  6. Bank payments are approved.
  7. Pay is finalised, STP generated and payslips sent to employees
  8. Employees receive funds in their account.

What are the biggest causes of the underpayment of wages?

  • Timesheet records are incomplete or obviously incorrect as employees have not clocked in or off as required.
  • Supervisors or Managers make adjustments to the records that are not explained or undermine the integrity of the data, such as change the working hours by removing overtime, so only base hours are paid.
  • The actual payroll data collected and then entered at various points through the process is incorrect. This might be
    • because an employee has made an error (which has not been identified).
    • incorrect interpretation or calculation of award conditions.
    • payroll has been set up incorrectly or rules have changed and not been updated.
    • payroll staff have not been trained or updated on the rules.
  • The initial engagement of an employee including employment contracts, leave entitlements or even employment classification (Full time vs Casual) is incorrect or does not adhere to their award or enterprise agreement.
  • An employee is engaged on a flat annual rate (annual salary) but payments have not been reconciled to the award to check they have been adequately compensated.
  • Failing to provide payslips to employees.
  • Superannuation liabilities being paid late.

Underpayment of wages (wages theft) is a particularly relevant topic at present with significant focus in the media, political arena and with union representatives.

Failure to adhere to the requirements can result in Employers facing court, significant fines and penalties and back wages being awarded severe penalty interest amounts. A recent determination saw a $5,000 underpayment result in fines & penalties amounting to $230,000.

From July 1st 2021, wage theft laws introducing criminal law penalties for deliberate underpayments will come into effect in Victoria. They have already been introduced in Qld and some speculate may be introduced at a Federal level in the very near future.

What can Employers do to reduce their risk of underpaying wages?

  • .Provide ongoing, relevant training to all payroll administrators ensuring they are kept up to date on award changes, industry updates and at state & federal levels.
  • Encourage employees to check their payslips and to ask questions directly to the payroll administrator if they have any queries. These should be dealt with quickly and if necessary training provided to employees to help them understand their pay & entitlements.
  • Make sure there is a process to ensure that any changes to employee entitlements or conditions are understood and undertaken by a person with the correct authority to do so.
  • Any changes to an employee’s terms & conditions of employment are formally recorded and stored in their employee file.
  • Ensuring that correct, accurate data from an employee’s contract is shared with Payroll administrators not left to interpretation or assumptions.
  • A training process is in place for Managers approving payroll payments to check the data, understand the entitlements & payments being made and that approval is not just a cursory glance of how much is going into the employee’s account.
  • Have internal process & controls to;
  • check & verify that payroll liabilities are reconciled between the payroll system and accounting system
  • check payroll liabilities have been paid in full, before their due dates
  • confirm STP is lodged and actioned on time and records have been reviewed for accuracy
  • liability payments have been correctly processed into your accounting system
  • lodgement records for payments are saved down into your payroll records
  • ensure new employees are correctly inducted into your business, all forms & processes required by law are followed for compliance
  • annualised salaries are reviewed back to the award on an annual (or more frequent basis) and adjustments, if needed, are processed accordingly

There is a range of industry or governing bodies that can assist with templates and guidance around award compliance specifically for your industry. As a start, you can view the Government’s Fairwork Website.

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