Why is wage underpayment or overpayment continually occurring in Australia?

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We’re continually bombarded every day with screaming headlines from some of our favourite brands having underpaid their staff well into the millions of dollars. The accusatory nature of the media shines a light on these high-profile and well reputed businesses, and immediately puts them to shame - risking stock valuations and invoking negative customer perception.

It is estimated that 79% of hospitality employers have failed to provide the entitled wage to their staff and an estimated 3 million employees have been underpaid to the tune of around $6 billion dollars. 

Amongst all of the negative hype, one must ask, WHY are Australian businesses continually underpaying (or overpaying, but we don’t hear about that often!) their staff? 

We sent our Payroll Review experts on the case. 

Underpayment and overpayment, or non-compliance of payroll, occurs for a multitude of reasons. The first and most common reason the experts at Workforce Analytics notice is the under investment in payroll, in terms of people, process and technology. 

Additionally, Australia’s employment legislation is notoriously complex which leads to a myriad of problems including:

  • Lack of knowledge regarding applicable industrial legislation or the Fair Work Act 2009 - employers are not aware of how Modern Awards and other industrial instruments apply to their employees, and they frequently misapply rules or interpretations. This frequently happens when someone administers payroll in the business who does not have comprehensive knowledge of the right legislative agreements.
  • Incorrect classification of employees - often employers will assign their staff members to the wrong Modern Award, or not update them overtime; therefore contributing to ongoing underpayment or overpayment. 
  • Reliance on annualised salaries - often employers will put staff on annualised salary agreements under the impression that they will not breach any payroll compliance issues. However, if the staff member ends up earning LESS when on an annualised salary versus what they would have earned on an equivalent Modern Award, then this is non-compliance and would be an underpayment. 
  • Businesses often fail to accurately record hours of work - this could be due to a gap in understanding around adequate record keeping, manual time sheeting, or effective administration. 
  • Incorrect payroll technology or regional legislative configurations - often Australian businesses will purchase payroll or time technology that is configured to international payroll processes, however, they miss crucial detail and interpretation to Australia’s Fair Work legislation and Modern Award interpretations. 
  • Incorrect integrations across timesheet applications, payroll, ERP and then finance technology can often lead to data mismanagement, manual data extraction or data entry errors. A small data error in a single part of the process can accrue hours of underpayment or overpayment over time. 
  • Personal/carer’s leave or pandemic entitlements accruing incorrectly - as legislation changes, often these entitlements must be continually updated.

So, what have we learnt? We have learnt that underpayment and overpayment in Australia is rife, and for a variety of reasons. We can ascertain that the Australian employment legislation is likely not going to get any easier to navigate, so the onus is on the employer to ensure continual and proactive compliance.

In our next blog, we will be discussing what proactive payroll compliance looks like and what Directors should be asking. If your team is uncertain about your payroll compliance, chat to our Pay Review team at Workforce Analytics to learn how you can gain visibility on your payroll systems. 

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