Payroll underpayment issues - where to start?

24 June 2020

There is no end in sight to the flow of payroll underpayment claims hitting the headlines and the desk of FairWork Australia. The problems are indiscriminate, arising in organisations within a broad range of sectors, size and structures.

Why are so many underpayments coming to light?

Part of the reason may be self-perpetuating. The public disclosure of underpayments by high profile entities has prompted others to review their records, leading them to uncover their own issues that are subsequently reported.

The changes to employment conditions resulting from COVID-19, and the full Federal Court’s recent decision that casual employees working regular shifts are entitled to be paid annual, personal and compassionate leave under the Fair Work Act, will likely only increase the focus on employee entitlements and expose underlying issues.

The prospect of a full scale review of historical and current payroll data can be daunting but there are some simple matters that can be considered at the outset. These initial steps will not disprove a problem exists but can quickly highlight avenues of further investigation:

How many pay codes do you have and what are they?

  • A simple review of your pay codes against the provisions of relevant award(s) or enterprise agreements can identify if provisions fields or information are missing. For example, should you be paying shift penalties but have no pay codes that separately identify these hours worked?

What is the extent of the payroll rules and what are they?

  • If a relatively long list of rules applies to one category of staff but hardly any for another, this can be a red flag. If the relevant award suggests similar entitlements for part time and casual staff, but the extent of the payroll system rules for each is inconsistent, this should trigger a review.

Re-read the award(s) and enterprise agreement(s)

  • Payroll processes can deviate from legal requirements with the passage of time or personnel changes. Errors can creep into the payment of entitlements that go unchecked without regular review back to the wording of legal instruments. For example, does the award require the payment of the higher or the lower of two alternative loadings or have allowances become payable or non-payable with changes in staff conditions?

These are straightforward tasks that can identify the initial focus of an investigation. By no means are they the extent of the work required, however they provide a logical starting point for an organisation faced with auditing its payroll compliance. These simple tasks can provide a sense of the risk and prioritisation of effort to avoid costs and reputational damage.