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Common mistakes that lead to staff underpayments.

Common mistakes that lead to staff underpayments.

News is constantly breaking of employers in Australia who are underpaying their employees. With fines for these breaches ranging from $126,000 to $630,000 per infringement of the fair work act.

With Single Touch Payroll in effect, both the employee and the ATO will have up to date wage details and are more likely to pick up payroll errors you may be making.

Please read below for some examples from “In The Black” on common mistakes you could be making.

1. Incorrect calculations in overtime provisions

It’s crucial to properly apply rulings from appropriate awards, particularly in sections covering breaks. Many awards and agreements stipulate that an employee must take an eight or 10-hour break between shifts to avoid being paid overtime.

2. Underpayment on termination

The Fair Work Act requires that an employee aged over 45 who has worked at an organisation for at least two years receives an additional week of notice on termination. Payroll managers often miss this technicality.

A rule with relatively narrow application, it’s unlikely to result in millions of dollars in underpayment. However, a complaint can trigger an investigation by the Fair Work Commission.

3. Failing to pay overtime penalty rates to part-time employees

Some awards require overtime penalty rates to be paid to part-time employees when they work more than their contracted hours. Employers often incorrectly assume overtime is paid when a part-time employee works more than 38 hours a week.

Another potential source of confusion is what constitutes ordinary hours, which can differ between and even within awards. One classification might include Saturdays in ordinary hours, while another may not.

4. Superannuation underpayments

Superannuation errors can be costly for employers. Superannuation should be paid on ordinary-time earnings, including bonuses, commissions and leave loading. It is not paid on overtime, but is paid when an employee receives the equivalent of overtime rates – two different pay codes.

A payroll system that classifies earnings as overtime instead of the equivalent of overtime rates could lead to the underpayment of super.

The mistake must be disclosed to the Australian Taxation Office (ATO) and will incur administration fees and a fine, plus interest on the repayment.

5. Only paying the base rate on annual leave payments

Many employers pay annual leave at the base rate for 38 hours a week. However, annual leave payments should include any penalty rates the employee normally receives.

6. Excluding commissions and bonuses from long service leave

Long service leave is another area that commonly trips up employers. The first thing to know about long service leave is it is always calculated in weeks. If your payroll system is calculating it in days, your long service leave liability will be wrong.

Long service leave is valued according to average weekly earnings including bonuses and commissions in a set period, which varies between states and territories. Most employers get long service leave wrong. If you change from full-time to part-time because you’ve had a baby and you come back a few years later at full-time, average weekly earnings can be quite different, so it’s important to keep it in weeks, not days.

7. Lack of payroll reviews and outdated systems

Most underpayment errors stem from outdated payroll systems.Sometimes you see payroll systems that have been put in 10 years ago and never revisited, even though the laws change every year.

A common feature of high profile underpayment cases is the lack of a qualified or experienced payroll manager.

Organisations should perform spot compliance audits and hire or train a qualified payroll manager, or outsource payroll to a high-quality managed service provider.

Unsure if your payroll is compliant? Call our office or book an appointment online to review your current practices today!

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78 Henna Street, Warrnambool, VIC
Phone: (03) 55 618 618
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