Avoiding Costly Underpayments & Payroll Issues

Why do underpayments occur?

In Akyra’s experience, it is very rare that businesses underpay their staff intentionally. Usually, underpayments occur when payroll obligations or not fully understood or the administrative procedures are not in place to ensure compliance.

We’ve found the most common forms of underpayments and payroll errors are:

• ‘Set and forget’ use of annualised salaries and loaded up pay rates
• Outdated payroll and timesheet systems
• Staff working overtime or using penalty rates that are not recorded
• Superannuation guarantee not being correctly paid
• Employees not being paid their minimum shift requirement
• Staff taking breaks too late or too early in their shift, causing issues with split shifts
• Incorrectly classifying an employee or using the wrong award rate.

“Reasonable” Overtime

Another area where underpayments often occur is when employees are on annualised salaries and are expected to work reasonable additional hours without additional remuneration as the salary should cover it.

While this is accepted and common practice, it is only permitted when workers are paid well enough or above their respective award hourly rate, so their additional pay compensates for the overtime hours. This is why a review in February of each year to ensure those employees on an annualised salary are paid at least equal to or more than if they were paid strictly in accordance with the Award.

This legislation came into effect in March 2020 in many Awards. The effective review period is March to February each year.

How can employers prevent underpayments?

To protect your business, you should think about the following steps as mitigating steps:

• Conduct regular audits to catch and resolve payroll issues early
• Ensure staff are classified under the right Award, and regularly review this classification as it can change with staff picking up additional responsibilities
• Keep detailed timesheets and pay records to make sure employees are properly paid and you can prove it
• Ensue staff are taking appropriate breaks and using their time off as required
• Ensure you are up to date with wage increases, employee benefits and any other changes that could affect payments
• Establish accounting practices that correctly pay the employees’ superannuation guarantee.

There are many factors that can make the process of compliance confusing – e.g. changes to Awards, vague clauses in employment agreements.

Akyra’s Key Takeaways

• Small to medium business operators need to ensure that they are paying their employees in accordance with relevant Awards or employment agreements. Even if salaries are above Award levels, regular checks are necessary to ensure compliance, including accurate leave accrual, superannuation payments, and adherence to regulations regarding breaks and overtime.
• Underpaying staff can have serious consequences for businesses, leading to financial penalties, cash flow issues, high staff turnover, and damage to the company’s reputation. Employees may experience decreased motivation, absenteeism, and stress due to underpayments. In some regions, wage theft is considered a crime, and legislation with fines and potential imprisonment is being considered at the federal level.
• Underpayments often occur unintentionally due to misunderstandings of payroll obligations or inadequate administrative procedures. Common sources of underpayments include using outdated payroll systems, failing to accurately record overtime or penalty rates, incorrect superannuation payments, and misclassifying employees. Employers can prevent underpayments by conducting regular audits, ensuring proper staff classification, maintaining detailed records, managing breaks appropriately, staying updated on wage increases and regulations, and establishing proper accounting practices for superannuation guarantee payments.

Reach out to Akyra for professional assistance in the prevention of non-compliance and protect you and your business from penalties, negative publicity and increased employee turnover which often follows underpayment claims.