The $5.3 payroll error that’s easier to fix than you expect

Today the Fair Work Ombudsman (FWO) announced that it had recovered more than $5.3 million for nearly 3,600 underpaid direct care employees working in the aged care sector.

This investigation covered 22 businesses in 5 states, finding that 13 of the 22 businesses were non-compliant with workplace laws and had underpaid their employees.

FWO Anna Booth said the investigations set a clear precedent that the Ombudsman will take action against any business whose payroll systems are not “fit-for-purpose.”

In this blog we look at how these businesses, many of whom were not aware of the underpayments, became liable for thousands of dollars in back-payments and how businesses can protect themselves from underpayment risk.

Why were these businesses affected?

There are many reasons a business might pop up on the FWO’s radar. The most common is a history of non-compliance. Once a business has been flagged for payroll non-compliance, the FWO is more likely to come knocking to check that payroll systems haven’t gotten out of shape again.

The FWO also highlighted that these businesses were chosen due to having high proportions of their staff holding visas. Beyond these factors, anonymous complaints and ‘other information’ were cited as cause for inspection. While many businesses might feel confident that they don’t fall into this category, our Workforce Pulse survey of 510 Aussie businesses found that confidence doesn’t always match capability.

We found that while 92 per cent of respondents in the healthcare, disability, aged care & childcare industry felt confident in their payroll, 52 per cent revealed they had discovered a payroll error at some point. That gap is why it’s essential for businesses to check their pay practices are compliant rather than just assume everything is correct.

What did they do wrong?

The most common source of non-compliance included:

• underpayment of minimum rates of pay;
• underpayment or non-payment of broken shift entitlements;
• non-payment of minimum engagement periods;
• and underpayment of overtime.

While many individual underpayments were minor, repeated mistakes stack up. The average overall underpayment per employee was $1,478. The question employers must ask is: when is the last time we checked our payroll was compliant? Do we know, for a fact, that we would pass if an FWO audit arrived tomorrow?

Booth’s message to employers echoed this sentiment: “Small errors in isolation can be costly across a large workforce. Improved payroll and rostering practices and a greater compliance focus can avoid these issues.”

It’s not all doom and gloom: the FWO’s praise for proactive employers

While the headline reads as a compliance horror-story, the truth is that the Ombudsman acknowledged that the investigated employers had largely been cooperative and proactive.

“The FWO commends the investigated employers who conducted their own audits and back-paid employees beyond the scope of our investigation. These actions indicated most employers were committed to putting in place assurance measures that would strengthen their compliance practices.”

Booth was quick to praise employers who sought external advice on award entitlements, updated their payroll system and provided training to relevant staff to prevent future non-compliance.

So, while the headline reads ‘costly compliance breach’, the FWO’s message is clear:

A proactive audit approach, coupled with fit-for-purpose payroll, is the fastest solution to payroll compliance.

If you are looking to upgrade your payroll system, the team at foundU offer award-winning payroll and workforce management services backed by Citation Legal, our in-house legal team.

If you’re not 100 per cent confident with your contracts, payroll processes or award/agreement interpretation, get in touch with Citation HR to see how we can help you stay compliant, confident, and protected.