How to Avoid Costly Payroll Mistakes

Xref’s CFO, James Solomons, is a regular host of the great CFO Series webinars. So, when he recently led a discussion about The CFO’s Role in Navigating Payroll Compliance, we couldn’t wait to listen in and see what nuggets of information we could share with our blog readers. 

The Complexities of Australian Payroll

A recent study by TMF Group found that Australia appears at number 21 out of 77 global jurisdictions ranked in order of their HR & payroll complexity, with Canada ranking at 36, the UK at 42, New Zealand at 55 and the USA at an impressive 76. This indicates that payroll professionals in Australia face one of the most complex working environments in the world. 

Owing to this was, in part, the challenges associated with Australia’s payroll regulations, including it’s mandatory reporting requirements, which tend to be more comprehensive and frequent when compared to other markets.  

Managing Payroll Compliance in a Pandemic 

The HR and finance teams across the country do an amazing job of navigating payroll at the best of times, but payroll management has become increasingly complicated during the COVID-19 pandemic. 

The changes in hours, contracts and working environments of the global workforce between early 2020 and early 2021, all contributed to the necessity of having the best processes in place to ensure the accuracy of payroll across a business. 

And the ability to share payroll information with business leaders, in real-time, is somewhat new but also an increasingly important factor for consideration. As Kevin Brookes, national sales manager for Datacom, pointed out on the CFO Series webinar,  “More organisations are looking to outsource payroll using cloud-based solutions so they have access to accurate payroll data on demand.”

The Reputational Risk of Payroll Mistakes 

As our CFO, James Solomons, told the audience during the webinar, “a one-dollar mistake can really add up. You can see how payroll problems get out of control, even when businesses are not intentionally underpaying or not paying staff.”

But aside from the obvious possibility of being faced with an unhappy Fair Work Ombudsman inspector, arguably, the biggest risk of getting it wrong is the reputational impact it can have on a business. 

According to Campbell Fisher, Managing Partner & Solicitor General from the FCB GROUP, the reason for this is that the media incorrectly portray underpayment, which can be easily done and escalate quickly. Meaning, when we see scathing headlines about a well-known business leader or brand that has failed to pay staff correctly, it is deemed in the same light as wage theft. 

According to Fisher, there are three types of underpayment: 

1. Genuine wage theft - when a business doesn’t pay its staff 
2. Know non-compliance - turning a blind eye to improper salary payments 
3. Lack of compliance systems - incorrect payroll behaviours that may be inadvertent 

Common Payroll Mistakes and how to Avoid Them

1. Relying on inaccurate employee data

As with all business processes, a good and reliable payroll process firstly requires accurate and up-to-date employee data. Introduce a verification process during onboarding, so that new employees and their managers can confirm that they are happy with the details that have been provided. Note that employee details may change during their time with the organisation, so a process for updating and, again, verifying details is also advisable. 

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2. Misunderstanding compliance measures

It can be difficult to stay on top of regulations and legislations, particularly during times of major economic change, such as the COVID-19 pandemic. But it is critical to stay on top of the regulations in all of the markets your organisation operates in, in order to avoid mistakes. Consider working with an outside advisor to ensure you have expert input on any new or upcoming changes to the way you need to operate. 

3. Inaccurately classifying employees

Today’s workforce is made up of a growing number of employment arrangements. Over the last five years, there has been a significant increase in the so-called “gig economy” and, since many organisations were forced to send employees home due to COVID-19, there has also been a rise in the number of people adopting part-time, flexible working and WFH arrangements. It’s important that managers understand the impact these may have on payroll, as well as ensuring they’re across all sick days and annual leave taken by their team, in order to keep payroll staff informed. 

4. Human error ‍

Often payroll mistakes come down to nothing more than human error. For example, if an employee is offered a bonus but the payment is not recorded as part of their annual salary. Using spreadsheets and combining data from multiple different sources, such as bank accounts and timesheets, can quickly lead to errors. Adopt a payroll software platform and integrate all your data sources to centralise your information and avoid common, human mistakes. 

5. Ensuring security

Manual payroll processes can lead your business open to the risks of payroll fraud, as people from outside the organisation could gain access to employee payment data. Again, software that integrates to ensure data is passed securely through the process, rather than being manually transferred, and offers additional layers of security, such as two-factor authentication, can provide the assurance you need.  

Best Practices for Staying on Top of Payroll Changes 

We asked our HR and Payroll Manager, Melanie Seymour, a few questions about how she navigates payroll changes to ensure our compliance at Xref. 

1. How do you stay on top of changes to payroll regulations? 

I work really closely with our CFO who stays informed by the channels he uses to ensure all of our finance practices align with current legislations. Our local internal and external accountants will also keep us informed and ensure that we are up to date with all payroll regulations in each of the regions we operate in. As we use the Xero platform we are notified of all relevant information and updates, which is hugely reassuring. 

2. How do you ensure that the managers of each department keep you informed of any changes in employees’ working arrangements? 

We have a constant and open dialogue - I encourage managers to keep me up to speed with anything happening in their teams and will involve them in any decisions made about payroll to avoid last minute or drastic adjustments wherever possible. As a global company, it’s really important that we communicate any changes to working arrangements quickly and effectively.  We have strict internal approval channels which all proposed changes to roles and salaries go through. As the payroll manager, I am included in that approval process and help to ensure it is all handled smoothly and compliantly. 

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3. What tips do you have for managing payroll across multiple regions?

Be organised and flexible! Communicating with external payroll processors across different regions means you have to develop good relationships and be available to those providers when required. More importantly, you have to do the same with your regional employees. They need to be able to trust that you will process payroll correctly and on time and as a Payroll Manager it is imperative that you recognise everyone relies on you to do this.

4. How (if at all) has payroll management changed since the pandemic hit?

For myself, not a great deal. We had great technology and processes in place, prior to the pandemic so the way we handle all aspects of payroll is still largely the same. However, I do miss having face-to-face contact with the finance team as those in-person discussions can be so valuable and often more insightful. 

Understanding Payroll as a Cultural Foundation 

At Xref, our Co-Founder and CEO, Lee-Martin Seymour, has always made it very clear that all other business issues aside, his number one priority is ensuring that staff are paid the right amount and on time, every month. 

Above all else, salaries must come first. 

It sounds very simple but it’s a core element of our company’s culture. Often, salaries are overlooked in the day-to-day running of a business, or seen as a consideration for the finance and payroll departments alone. The fact that our CEO puts such significance on the accuracy of our payroll, demonstrates the importance he places on his people. 

In Summary 

Accurate payroll is the very least you can offer employees, having the right systems and processes in place is critical to ensure you are not only compliant but also a reliable team member for your employees.  

In a world where businesses are operating with increasingly dispersed teams, it has never been more important to build trust, ensure the engagement of employees and  maintain productivity.  This must start with getting the basics right and guaranteeing payroll accuracy is just the beginning but an extremely important foundation for success.