3 ways to manage payroll risk

According to the Fair Work Ombudsman, a record A$532 million in unpaid wages and entitlements was recovered in 2021-2022 alone, for more than 384,000 Australian workers. 

Although there have been cases of deliberate underpayment, more often than not it is the result of genuine errors made by payroll staff who aren’t adequately equipped to navigate an incredibly complex system, says Tracy Angwin, CEO and founder of the Australian Payroll Association. 

“There are ongoing changes to salary arrangements, awards, long service leave regulations, tax, super legislation – these are the sorts of complexities that payroll professionals are making hundreds of decisions about each week on behalf of executives and board directors, putting these individuals and organisations at risk,” she says. 

Payroll errors tend to occur when an award or industrial agreement is misinterpreted or when technology is incorrectly configured. Tiny lapses in judgement could expose employers to fines, bad press and reputational damage, not to mention significant backpay costs, Angwin explains, adding, “When you make a small error over a large employee population over six or seven years, it can end up costing millions of dollars.”

To mitigate risk, Angwin recommends employers address the following three areas of potential weakness:

1. Support your payroll team

A 2021 survey undertaken by the Australian Payroll Association revealed that 89 per cent of payroll managers find awards and legislation difficult to interpret. Angwin recommends ongoing training and ensure staff have a minimum qualification of Certificate IV in Payroll Administration.

Access to specialist expertise, such as a payroll advisory service, is also helpful. “Give your payroll teams someone they can call to clarify a question without having to sit on the phone for an hour to the Australian Taxation Office or Fair Work,” she suggests.

2. Eliminate manual processes

Technology plays a pivotal role in a successful payroll system, and Angwin encourages organisations that still rely on paper at any stage of the process to get rid of it. “You should look at what you can automate, what you can simplify and what you can standardise,” she says. 

Payroll systems should also be reviewed regularly to ensure correct set up and ongoing legislative compliance. “Too many organisations rely on the ‘set and neglect’ mentality of payroll technology,” Angwin cautions.

3. Customise payroll processes and systems 

Every organisation is different, and both the payroll platform and the delivery strategy should be fit for purpose and customised. 

Whether payroll is undertaken by an inhouse team or outsourced to an external provider, Angwin urges organisations to engage a specialist payroll consultant to perform regular payroll compliance audits. This will identify any existing issues and ensure that risk areas are adequately addressed to prevent any nasty surprises emerging in the future. 

“Being proactive in this way, rather than reactive when a problem does emerge, is a small price to pay for payroll confidence,” Angwin says.

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