‘You’re more likely to be paid incorrectly than you are correctly’

Large and small businesses are making payroll mistakes at a high rate, and the damage is being felt by Aussie workers across the nation. How do these widespread errors happen so regularly?

New data points show that over the past 24 months, 59 per cent of Australian companies have made a payroll error.

“So, you could say that you are more likely to be paid incorrectly than you are correctly. That is how big of a problem it is,” said Matt Loop, Rippling vice president and head of Asia, on a recent HR Leader podcast episode.

“It’s not [just] the biggest companies in Australia. I am sure people have read headlines seeing some of the most well-known brands that have had challenges with this, but it’s also small businesses. Just in the last few weeks, there was a dumpling restaurant that was fined $4 million for underpayment.”

So, why are these mistakes happening so often?

Loop believes there are a number of contributing factors, with the first being the outdated systems that so many organisations, smaller ones especially, are still relying on that often provide damaging inaccuracies.

“First and foremost, a lot of companies are still reliant on outdated systems. And this means that they require a lot of manual intervention. There is still a lot of burden on payroll managers, payroll professionals, and HR leaders to do things outside of the system. And when you do that, that’s where errors come in, human error,” Loop said.

“Second, there are too many systems. [Close to] 63 per cent of companies are using three or more solutions to manage HR and payroll. And 37 per cent are using five or more systems. So having to toggle and jump between all these tools, not having a single source of truth, is a massive challenge. Again, more systems, with more manual intervention, are more prone to human error.”

Cutting down on the number of systems being used and updating old and run-down systems can be crucial changes that an organisation can make to ensure that their payroll is not prone to errors.

At the same time, educating staff, especially the ones who are overseeing the payroll systems, should be a top priority. Education and training can mitigate those human errors that often occur when it comes to these sophisticated systems. It also offers them clarity when unique situations may arise.

“They [organisations] need to start educating their team on how that [payroll] is going to happen. They need to understand the implications, perhaps the cash flow of what that might mean if they need to pay each pay run, not just quarterly, and they need to make sure they have the automation and systems in place to help handle that,” Loop said.

Reverting to the mistakes aspect, although the number of them that have occurred has been high, Loop believes that they can be classed as accidental, condemning a few “bad actors” as the minority in terms of the wage theft that often sweeps the headlines.

“A lot of these mistakes were accidental; these weren’t purposefully done. There are bad actors out there, and there are ones that have clearly gone about doing this in the wrong way. They have submitted erroneous paperwork and done these things on purpose.

“Hopefully, the majority are just natural mistakes that happen. And the companies are transparent, both with the appropriate bodies, like Fair Work, but also, most importantly, with their employees. When they’ve made a mistake, they own up to that and they take the corrective action to ensure that pay is properly distributed,” Loop said.

Whether malicious or accidental, the impact these mistakes can have on the individual employees who often fall victim to them can be extremely overwhelming. Such mistakes can create a great disdain towards their employer and corrode any trust that was previously held between the two parties.

“The implications [of these mistakes] to employees are enormous. Ultimately, when you break down what employment is all about, it is rendering of services, whatever your job might be, construction, white collar, it doesn’t matter – in exchange for monetary compensation. And if that’s effectively the agreement, and when that doesn’t happen, when pay is not provided in line with that agreement, that’s a breach of trust,” Loop said.

It is easy to look at the media headlines, the fines, and the embarrassment as the most relevant implication for organisations that make a payroll mistake, yet in the broader scheme of things, losing that employee trust is huge for future business outcomes.

“The implications of it, outside of getting brought up into the spotlight of the media and having some negative attention on your brand, that’s going to create huge morale issues within the business.

“Employees talk, and if it gets out that someone is underpaid and it’s not looked after in the right way, the broader team is probably going to find out about that. That’s going to do a lot of damage to the morale of your own employees,” Loop said.

“If that gets out there, it’s going to do damage to your brand as a company, which is going to stop you from attracting the best talent in the market.”

Adjusting your payroll systems to updated versions while eliminating the unnecessary number of systems that you may use could be the difference between retaining and losing talent in the long run.

The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full conversation with Matt Loop, click below: