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HR to Go podcast episode 5: Avoiding fines with payroll reviews (transcript)

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Karen: Welcome to HR to Go by Effective Workplace Solutions. In this episode of HR to Go, we’ll be chatting to Effective Workplace Solutions Consultant Peter Norri about payroll reviews. Welcome, Peter. Thank you for joining us today.

Peter: Thank you, Karen. It’s a pleasure to be here.

Karen: Can you start by explaining what a payroll review involves?

Peter: Certainly, fairly straightforward in lots of ways. In some ways, what we’re doing is we’re recreating the payroll over a set period of time to compare it to industrial instruments, employment agreements, those elements which should apply, such as the NES and we look for disparities between what is being paid to what should be paid.

Karen: Right. So the review sounds pretty comprehensive, what would you say the most common errors are that you typically discover in a payroll review?

Peter: I’m not entirely certain that there are common errors. There’s errors that I find in almost any capacity that an employer has to pay something wrong I’ve found examples of in the past. Certainly, there’s often problems with overtime being paid with meal allowances, first aid allowances, minimum break periods, higher duty allowances—so that there probably are things that I see very commonly, but they’re not the same thing all the time, if that makes any sense, Karen.

Karen: Absolutely. That does. So how common is it to find an error during an audit, then?

Peter: Oh, incredibly common. It’s only once in all the audits I have ever done have I found one employer who I couldn’t find a single error in their payroll for the period we looked at. And that was probably because they just changed their system, and they’d just done a purge. So it was very fresh and was very new. Everybody else, it’s just so common that it’s, you know, it’s just what you expect to see; you find errors. And sometimes they’re quite frightening errors, too, in the sense that, you know, somebody might be under paying somebody or somebody’s entire workforce for six years or more.

Karen: Wow. So it does sound like you would be expecting that if you’re undertaking a payroll audit, you’re probably going to find errors of some manner.

Peter: Absolutely. Absolutely. There’s always errors and the bad errors. There’s no such thing as a good error, Karen. But these are errors, which are very costly, potentially costly to the decision makers in the business as well as to the business itself.

Karen: Can I run a scenario past you? Let’s say we’ve got an employer who discovers they’ve been under paying an employee for approximately a year because they had them on the incorrect award. How should they manage that situation?

Peter: Well, they need to take expert advice, Karen. And luckily, Effective Workplace Solutions is well placed to provide that advice, because it depends on the particular circumstances that have applied to that person. It depends on the award that should have applied. It depends on the contract that those written into how much of that still applies, as well as even though they paid the wrong award, part of that contract might still apply. So does it have a set of clause? Was there an IFA? There’s a whole pile of things that need to be looked at to determine how much and how that can be redressed. The one thing we have to do is we have to redress it. But it doesn’t necessarily mean throwing the kitchen sink at it?

Karen: Yeah. Okay. So it sounds like there’s probably not a straightforward answer to that. And certainly don’t ignore it. But you know, seek advice based on your particular circumstances.

Peter: So, so maybe to give you an example, in one organisation, which obviously I won’t name, there’s, there’s probably two different ways of redressing the severe payroll problem that was uncovered during the review. And one way would have cost over a million dollars. And that was using a very sort of straightforward, not really interpreting the material that we had, but rather just saying the award said this much, and that’s how much we’ll pay them, rather than looking at how much we did pay them and what we could set it off against legally, of course. The company took proper advice and we ended up settling it for probably half the cost of what would otherwise been. So if you do it with the proper advice, you can save yourself a lot of money legally. Yeah, that’s the thing, I guess, is that it has to be done properly.

Karen: Yeah, certainly staying inside the bounds of the law. Absolutely. And not creating more issues. So Pete, tell me, what are the benefits for a business of engaging an external person to review their payroll.

Peter: The biggest benefit is probably having some insight into what your payroll looks like, because most managers, CEOs and managers have different parts that never really look at the payroll until someone complains. So they don’t know what’s really happening in there. And oftentimes, they’re very surprised when you talk to them about what their payroll’s been doing in the recent past. So the other thing, of course, is having some surety then that what we’re paying people is what they’re entitled to, that we’re legally doing what we’re meant to be doing, and that we’re compliant with the NES, we’re compliant with the award, if there’s an award that applies, and where we’re meeting our obligations as an employer.

Karen: Yeah. Which is absolutely the end game for all employers, isn’t it, to be doing the right thing by their people? Many people have heard of the term wage theft. Are you able to explain what that term means?

Peter: That doesn’t exist in every state. But in Queensland and Victoria, there’s certainly a concept called wage theft. Well, it’s a criminal offence in both states. In Victoria, there’s actually custodial sentences attached to it and maximum 10 years. And people can report in Queensland a suspicion of wage theft to the local police station.

Karen: Right. So this is an actual offence that can result in significant fines for business owners.

Peter: Correct. Under the Fair Work Act is fines for what’s called serious contraventions. And that’s the most severe type of contravention of the Act in particular, or award. And that for an individual, that’s $93,900 per contravention, and for a corporation, that’s $939,000 per contravention, so we’re talking serious, serious money.

Karen: Yep, so definitely worth business owners ensuring that they’re getting this aspect of their operations, correct. Well, Peter, it’s been great to hear your wealth of knowledge in relation to payroll reviews today. But before we finish up this chat, do you have any tips for employers regarding payroll within their workplaces?

Peter: I think the tip is to engage someone—if it’s not Effective Workplace Solutions, then somebody else to cast that independent eye over your payroll on a regular basis to make sure that you’re not in the wrong somehow inadvertently. Because whilst the fines won’t be $939,000 in most cases, it’s the backpay that actually causes the biggest problems. And that’s what we see most often on the news, you know, big organisations, who I won’t name here, but who it’s been reported, you know, millions of dollars to their employees. And they’ve got to find those millions of dollars.

Karen: Yeah, I imagine that’s not in the budget. Well, thank you so much for your time today, Peter. Thank you everyone for listening to another episode of HR to Go.

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