Common Pitfalls in Payroll Processing and How to Avoid Them
Australia’s pay system is full of complexities, and unfortunately this can lead to payroll errors and unwanted fines for businesses.
Just a quick look at this topic in the news shows a number of serious payroll breaches. Recent Fair Work Ombudsman (FWO) audits also reveal payroll errors in many businesses. The most common of these are underpayments and poor record keeping – with hospitality being named the ‘least compliant industry’.
Some of the potential pitfalls
Some of the more common payroll errors and breaches uncovered by the audits include:
Incorrect employee classifications.
Failure to keep accurate records or to provide payslips.
Mistakes in calculating overtime.
Errors on annual leave and termination payments.
Tips for avoiding payroll errors
Prevention is always better than cure, and for payroll this means getting it right the first time to avoid ongoing problems. Here are some ways to go about this.
Make sure your employees are classified correctly – i.e. according to the correct Award or registered Agreement in your industry. More information on this is available on the FWO site.
Maintain accurate payroll records for each of your workers and for all wages paid. Also provide payslips to employees for each pay-run (or online access to them).
Set up a system for checking each pay-run – e.g. one person to process it and a second person (such as a supervisor) to double-check it for accuracy.
Make sure to pay overtime and penalty rates accurately. Some businesses have been fined for failing to pay overtime to casual workers.
Pay the minimum required level of superannuation for all employees. The current rate of super is 9.5% of ordinary time earnings (OTE). However, OTE can also include commissions, shift and annual leave loadings, allowances and bonuses. Note, that unless the Award/Agreement specifically includes them, you do not have to pay superannuation on earnings not classified as OTE. These include overtime, termination payments of unused annual leave, jury duty, parental leave, and workers compensation for employees not working.
Keep up with compliance requirements – including for single touch payroll, PAYG reporting and payments, and timely payment of superannuation.
Review your payroll every year to make sure it is still accurate and in-line with current rulings.
Lastly and very importantly – you should always stay up-to-date with changes in legislation, Awards and pay scales, PAYG rates, superannuation rates and thresholds, and any other items relating to payroll. You can usually find this information on the FWO and ATO websites, and specialist HR firms can also help you comply with Awards and Agreements.
Following these guidelines should help you avoid payroll pitfalls. However, if you do discover errors in your payroll, the important thing is to fix them and make amends immediately.
Consider hiring a payroll specialist
Given the complexity, many business owners choose to partner with a professional payroll specialist to do the work on their behalf. This allows them to focus on running their businesses, while knowing their payroll system is being taken care of by the experts.
Get in touch with the Bookit team to find out about our payroll and bookkeeping services. We also partner with HR Central, who can help with interpreting awards. So talk to us about how we can help you avoid errors and stay compliant!