Employers warned of 'serious consequences' if committing payroll errors

Serious repercussions await employers who are committing payroll errors, which will not only impact their finances, but also their workforce.

This is according to Matt Loop, VP and Head of Asia at Rippling, when asked about the impact of payroll errors if they hit Australian organisations.

"There are serious consequences," Loop told HRD. "The Australian government is taking this unbelievably seriously and Australian employers need to do the same."

"Financial penalties are now being imposed on a lot of organisations, whether that be or up to criminal penalties and imprisonment, especially if you're a director of an organisation that's found guilty of wage theft."

Reputational damage

But there are other kinds of consequences that employers could suffer from, such as reputational damage.

"If you're in the media because you've underpaid your team knowingly, what is that going to do to attract or retain your existing employees? It's not going to do any help," he said.

Loop underscored that employees would be the "most impacted personally."

"The effect on employees is the biggest. That can be a massive morale hit to your culture, that is broken trust," he said.

"Ultimately, I think employment is all around the delivery of services by an employee in exchange for compensation. That's the trusted relationship that binds the employee and employer, and when that's broken by one of those parties, when the pay is not coming through in the way it's supposed to — trust takes a long time to rebuild."

Prevalence of payroll errors 

He made the remarks amid increasing reports of underpayments across major organisations over the past years, including Woolworths, Reserve Bank of Australia, Commonwealth Bank of Australia, Australian Catholic University, among others.

Rippling's own research found that 59% of Australian firms have made a payroll error in the past 24 months. The most common errors include:

• Under or overpaying an employee (48%)
• Delayed payment (44%)
• Misgrading an employee (28%)
• Not making superannuation payments (24%)

Loop attributed the prevalence of such payroll errors to reliance on antiquated systems or on relying on too many systems.

"If things can't be automated or you're not using modern technologies to really streamline and remain compliant, it opens it up to human error," he said.

Role of technology with payroll

Technology can play a huge role in mitigating these payroll errors, according to Loop.

"It can automate a lot of these specific rules, i.e. a modern award is an example that this is embedded into the tool that you're using and it ensures that pay rates are the way they should be and that people are paid in the right way," he said.

There are also one-stop tech tools, such as Rippling, that offer a single space that can be managed by the payroll team.

"That's going to eliminate errors, that's going to make their job easier, that's going to reduce the burnout that we know has been plaguing a lot of payroll professionals in recent years," he said.

Taking preventive measures

Amid evolving reforms and growing list of admissions of payroll errors across Australia, Loop underscored the importance of carrying out preventive measures to avoid payroll errors.

"First off, if you believe that your systems as well as the training awareness and education that's been provided to your payroll and HR teams are not where they should be, there's an opportunity to invest before you fall into trouble and you have an issue," he said.

This can give confidence to employees that the business is taking equal pay very seriously, according to Loop.

"The other thing I think you can do is create an environment where employees know that they can raise issues when they arise. Whether it's having an escalation process or creating an environment where if something is wrong, that they have a way and a person or group to bring those to light or review," he added.

If organisations have a culture of fear, employees might not escalate potential payroll issues to their direct manager or HR team and would go directly to Fair Work or find legal representation, Loop warned.

"What could have perhaps been resolved internally as an honest mistake, ends up being escalated and blowing up," he said.

"So, I think it's really important that companies create a place where employees feel safe and they know that they can bring to bear any issues that arise with their payroll, that they speak and they move quickly to resolve those [issues], they communicate with transparency, they demonstrate that they're investing to ensure that they avoid as often as much as possible any potential payroll issues."