Payroll errors more likely under Closing Loopholes reforms

More than half of Australian businesses plan to reconsider the way they manage payroll as a ‘direct result’ of the recent industrial relations reforms, research finds.

Having committed no payroll error over the last 12 months would place an Australian business in the minority. Wage theft is now a criminal offence across the country, though this is just one of several legislative changes expected to complicate payroll compliance.

“With the new wage theft provisions, employers risk legal penalties for errors, which could severely harm the business,” said Matt Loop, vice president and head of Asia at Rippling.

“We’ve already seen major Australian businesses be on the receiving end of this.”

Wage theft costs Australian employees nearly $850 million every year. While the new criminal offence only applies to intentional acts of underpayment, Loop said the reform has brought a higher level of payroll error scrutiny.

Moreover, the criminal offence was passed among a suite of industrial relations reforms – dubbed the Closing Loopholes legislation – that serve to complicate payroll accounting.

Consequent to the changes, “understanding and actioning the various nuances of the law becomes a time consuming and laborious process,” he said.

For example, employers must now ensure that contract workers are paid no less than their permanent counterparts, in a way that considers bonuses, allowances and other benefits.

Fifty-two per cent of respondents to a recent Rippling survey said they believe the reforms will add more “complexity and stress to payroll functions.

These changes compound the risks of human error and increase the likelihood that a business will fall foul of its legal obligations.

It is unsurprising, then, that more than half (54 per cent) of surveyed businesses plan to reassess their payroll management as a “direct result” of the Closing Loopholes reforms.

The most common payroll errors among surveyed companies include underpayment or overpayment (48 per cent), delayed payment (44 per cent), misgrading an employee (28 per cent), and failing to make superannuation payments (24 per cent).

While smaller businesses will have fewer resources to address the added complexities, Loop said payroll errors tend to scale with size.

In the past 24 months, two-fifths (39 per cent) of small businesses reported payroll errors. Among larger businesses, the rate climbed to over two-thirds.

Part of the issue is operational complexity. Nearly a quarter of surveyed larger businesses relied on seven different payroll systems, compared with only 4 per cent of smaller businesses.

“The more solutions you have, the more times you need to syndicate employee data across systems and the greater chance of human error taking place,” said Loop.

Point solutions – or, function-specific payroll, for example, in superannuation and tax filing – have been “fairly common” historically, he said.

But the realities of the modern workforce, with the growing importance of data interoperability as an efficiency driver, means having “multiple siloed solutions” is less desirable.

Nearly half (45 per cent) of surveyed companies said they were looking to switch their HR and payroll systems over the next year.

Loop said it was “surprising” to learn that nearly half (48 per cent) of Australian businesses continue to rely on manual payroll. Not only does this multiply the risk of human error, it is a huge efficiency problem.

“Paying your employees is a fundamental part of operating a business, but it’s something that companies are getting wrong again and again,” said Loop.

This article was originally featured in Accounting Times.