HR must view underpayments as a governance breakdown, not isolated payroll errors

One CFO has reflected on how HR professionals can help their organisations meet entitlement obligations and avoid underpaying their staff, while preparing for payroll legislation changes such as Payday Super.

In light of the underpayments made by corporations such as Woolworths and Coles and several universities last year, keeping up with entitlements, penalty rates, Payday Super, and overtime is virtually impossible to do manually, SKG Services chief financial officer Katherine Nguyen (pictured) said.

For Nguyen, underpayments are rarely intentional; she attributed these errors to lapses in payroll and governance, emphasising the role HR professionals must play in procuring payroll technology that helps their organisations stay compliant.

She noted that the bigger the organisation, the greater the consequences from weak employee award interpretations.

Governance breakdowns: A systemic problem

“Underpayments are [isolated] as payroll errors; they are actually governance breakdowns. In many cases, fixed salary arrangements fail to cover overtime and penalty rates,” Nguyen said

According to Nguyen, underpayments are a systemic problem: caused by weak systems, poor governance, and weak interpretations of employee awards.

“Payroll is no longer an operational function. It is a broad level risk category,” she said.

Nguyen emphasised that organisations must embed periodic independent payroll audits and clear accountability between human resources, finance, and operations to keep up with their obligations.

Having strong governance, salary-to-award reconciliation, and exception-based reporting to the executive level are some other ways organisations can stay compliant, she added.

Payday Super

“When it comes to this shift, it is [all about] cash flow governance and control redesign,” Nguyen said.

Nguyen noted that some third-party payroll software has already embedded Payday Super into their systems through redesign.

She noted that in conjunction with the software, when Payday Super needs to be paid, mini reconciliations must be carried out to facilitate payment, highlighting the changes in the control redesign and processes.

“The significance that I see is [a] cash flow shift … [from] quarterly [super payments],” Nguyen said.

She noted that for smaller companies, the legislation will introduce the need for cash flow redesign and cash flow planning implications to help manage super payments.

Working in parallel with tools

Nguyen said that smaller organisations must think about how they can develop strong governance that allows them to pay their people correctly, procure the correct tools, systems, and processes to fit their business size and needs.

Nguyen stressed that organisations should not completely rely on their payroll software or auditors.

“It is impossible to rely solely on manual [systems] or people because people are prone to mistakes, and the systems can eliminate some of that,” Nguyen said.

“You are never going to be able to rely solely on one method; [they have to work] in parallel to achieve the best results.”