Pay and payroll mistakes that can cost your business

Many businesses get pay wrong without being aware of it. But pay or payroll errors are a major financial and legal risk. Thus, you need to know where you could be going wrong and ways to stay compliant. This article covers the most common pay mistakes.

This article was originally published by Nick Stanley from MyHR. We have updated some of this article for our readers.

Getting pay or payroll wrong is a major financial and legal risk. Business owners and management are ultimately responsible for any pay mistakes and their consequences. This could lead to a hefty fine from a Fair Work Ombudsman Inspector, or the Australian Taxation Office, as well as any interest and legal fees.

Mishandling pay can also harm employees’ trust and confidence in the business, which can end up sapping morale and damaging your reputation. Unfortunately, pay errors aren’t rare.

A 2018 study estimated 2.4 million Australian employees could be affected by payroll underpayments, at a cost of $3.6 billion.

The combination of good payroll and HR systems will help reduce mistakes and non-compliance. In addition, this will make it quicker to identify and resolve any issues.

Here are some common pay errors to watch out for:

Underpayment 

It isn’t always easy to ensure employees receive all their entitlements, as payments for base salary, overtime, penalties, allowances, and superannuation can be complex and confusing. Employers can make incorrect deductions without knowing it, so don’t just accept that your payroll system is automatically accurate and payments meet current legislation and awards. Make sure the amounts are right. Also, take time to review what payments are being included and excluded

Overpayment 

Overpaying your workers can be just as costly and harmful to your business as underpaying. Nearly 70% of audits by the Australian Payroll Association in 2020 revealed overpayments, and some errors cost employers millions of dollars. Overpayments are also hard on employees who are unaware and not in a position to repay the money. In certain circumstances, the business might not be able to recover the money and the employee (or ex-employee) keeps it.

Minimum wage compliance 

The national minimum wage is the lowest that a worker can be paid. You and your employees can agree to any wage rate above the minimum. However, every employee must be paid at least the minimum for every hour they work. Making a serious failure to pay the minimum wage could lead to significant penalties. The Fair Work Commission reviews the minimum wage each year, so you need to make sure you’re up-to-date with the latest rates.

Unlawful deductions

Legally, you can’t deduct money from your employee’s wages unless it’s for a lawful purpose and is reasonable. Furthermore, the employee must agree to the deduction in writing. The law makes no distinction between not knowing what deductions are legal and deliberately breaching the Fair Work Act. The employers need to ensure any deduction is lawful and has been discussed with the person. If you are unsure, get legal advice before proceeding.

Needing assistance in avoiding these payroll mistakes? Feel free to reach out!

And just in case you wonder how we can assist, check out our list of services here.

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