This is an excerpt from Payroll HQ’s Efficiency, Compliance and Accuracy Whitepaper
Legal requirements for payroll processes are extensive. There are more than 40 Acts of Parliament that regulate different aspects of the payroll process in Australia. No matter what the employer size, many of these need to be considered when running your payroll function.
Not only do employers need to be across the regulations that affect them, they need to understand how they might work together to ensure a compliant payroll function.
The Australian Government has shown that they are serious about enforcement with an additional $19.8 million being provided in the 2019 Federal Budget to support Fair Work in their regulatory compliance activities.
Organisations who underpay staff are getting significant fines and bad press. In recent months the following businesses have hit the headlines for underpaying their workforce:
- Rebel Sport
- Commonwealth Bank
- University of Wollongong
- Lush Cosmetics
- Maurice Blackburn
- Michael Hill
Several of the above examples were a result of a failure in one or more of the following areas:
- Poor processing controls
- Incorrect interpretation of awards or agreements
- Incorrect configuration of software
- Human errors processed by unqualified payroll staff
It’s not just underpayments and compliance issues to be concerned about. Tracy Angwin, CEO of Australian Payroll Association, reports that of the payroll compliance audits that Australian Payroll Association have completed in the past 12 months, many of the errors discovered are actually overpayments rather than underpayments, but of similar values.
Companies of all sizes face increasing payroll complexities as the number of employment laws and regulations are on the rise, and the risk of penalties for non-compliance has perhaps never been greater. For this reason, many businesses choose to outsource certain payroll functions to help mitigate these potentially costly payroll pitfalls. Doing so means having access to experienced payroll professionals who deliver payroll compliance resources as well as managing the entire payroll function for employers.
In addition, a recent survey by Australian Payroll Association which surveyed 600 Australian payroll professionals found that a concerning 1 in 3 of Payroll Managers admit to making a mistake at least once a month. In addition, 90% of payroll managers admit they had issues interpreting awards. While half of payroll managers also stated that they felt underqualified to do their role.
It is then hardly a surprise when we read the following headlines:
Australian payroll is an extremely complex environment. This was highlighted by a recent NGA Human Resource global payroll complexity index which confirmed that Australia has an above average global complexity rating of 5.85, behind France with a rating of 7.65. While our gross to net calculation is relatively simple, determining gross pay is often underestimated. It consists of a system of awards, enterprise agreements, national employment standards, superannuation, leave management, tax law and salary packaging where specific payroll expertise are required. For Australian businesses, a high level of knowledge is required to process payroll correctly, and it is reliant on organisations continually reviewing and investing in their payroll environment, including staff skills and knowledge, payroll technology and continuous improvement in payroll processes.
In section four of this whitepaper (download here) Tracy Angwin, Chief Executive Officer, Australian Payroll Association discusses how businesses can profit from payroll through the introduction of a robust risk management and governance framework that focuses on three areas – people, processes and platform.
A strong risk management and governance framework will help businesses stay on top of legislative changes which continue to happen almost on a daily basis. However, to do this requires proactive, diligent and accountable leadership. In the past twelve months alone, the following major legislative changes have been implemented:
- Minimum wage increase
- Changes to termination payment calculations
- Single Touch Payroll (STP)
- Family & Domestic Violence Leave
- Long Service Leave in Victoria
- Casual conversion to permanent employment
Changes will continue, and many organisations are struggling to keep up to date and accommodate them. It is important that organisations review the current operating capacity and capability of their payroll environment, and ensure the environment is agile enough to deal with the fluidity of expected changes in the coming years.
In addition to ongoing legislative changes, there is also continued pressure to keep pace with technology which continues to automate and optimise payroll processes. In the next section of this whitepaper (download here) Jarrod McGrath, Founder & Chief Executive Officer of Smart WFM looks at the impact of the digital revolution and its impact on payroll and the broader business.
Organisations operating without a solid risk management framework are exposing themselves to payroll processing risks, including non-compliance and fraud. A payroll risk management framework can provide business executives with visibility of the end-to-end payroll processes, giving them the ability to proactively manage risks and work to deliver a highly sustainable and rigorous payroll environment. This will ensure ongoing payroll compliance while also providing executives with access to critical workforce management insights.
Other Factors for Consideration Include:
Financial Controls, Data Protection and Privacy
Organisations need to also consider both internal vendor financial controls and data security and privacy risks when looking at their payroll environment. As with any data stored digitally, including payroll data, there is a
risk that unauthorized individuals can gain access. This consideration is especially important when dealing with an outsourced payroll vendor.
The recent introduction of General Data Protection Regulation (GDPR) directly impacts Australian payroll functions and outsourced providers. The GDPR applies to any business (or public sector entity) that holds, controls or processes personal data of EU residents regardless of the business’s location. This means that any Australian company that holds personal information of EU resident employees will be captured. Many Australian businesses may therefore be unknowingly required to ensure that their data handling practices comply with the new GDPR requirements.
Data Protection & Cyber Security
Data protection is the process of keeping data secure and protected from malicious and unauthorized access, in addition to corrupted access. It is important to note that Data Protection does not just relate to malicious attacks but also accidental loss of important or valuable data. There are many ways to prevent data security breaches, such as encryption, strong user authentication, backup solutions & data erasure.
The growing demands around data and data privacy is a reason that organisations are actively looking to outsource payroll processing and management. The statement is supported by the NGA Global Payroll Complexity Index which confirmed that a third of respondents indicated they would look to outsource payroll in the next 2 years. Data security is governed by many international laws and standards, such as the Data Protection Act.
Onshore vs. Offshore
When considering payroll outsourcing business generally have two options, onshore or offshore.
Off shore will always be cheaper, but the downsides include time-zone differences, never meeting the team that processes your payroll, often lack of urgency to payroll issues, lack of qualified staff and the management of payroll decisions and functions that aren’t strictly in a payroll process document.
Onshore will cost more, but comes with benefits including the ability for management and staff to meet the payroll processing team, and the potential of not having to have payroll expertise inhouse to ‘manage the outsourcing arrangement’ in a fully managed environment.
Whether you decide to handle payroll functions internally or outsource it to a business partner, there must be processes in place to remain compliant with workforce laws and standards. Organisations should always stay on top of payroll because non-compliance will negatively affect them and also any vendor that knowingly oversaw the underpayment of employees. Frequent audits and holding employees and vendors accountable for compliance processes can add additional layers of security to increase confidence that your payroll processes remain compliant at all times.
Globally today we see payroll functions playing increasingly strategic roles within forward-thinking organisations, especially as talent management becomes a key business imperative. As priorities shift to things like reskilling, employee engagement, succession planning, and technological integration, payroll can no longer be an afterthought, handled by various employees as time allows. Payroll has become its own specialty, requiring not only an in-depth knowledge of multitudes of regulations, but also a fail-proof process for keeping up with regulatory changes.
What does your Payroll Risk Management & Governance Framework look like?
Are you confident that your payroll team are keeping pace with legislative and technology changes?
Author: Ross Heron // CEO, Payroll HQ
Want to know more?
Download the full whitepaper here. This whitepaper is the go-to document for Business Owners, Executives and Directors to examine their payroll processes and put a plan in place for future changes to the workplace environment.Download Whitepaper