Time For A Payroll Health Check? How a payroll health check can help identify potential issues and save the business money.

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1 Time For A Payroll Health Check? How a payroll health check can help identify potential issues and save the business money

2 Why it is time for a payroll health check All too often, companies neglect conducting a payroll health check, especially when employees are getting paid on time and the business is operating as usual. This has led to numerous companies being caught out and penalised for not properly accounting for payroll taxes withheld or underpaying employees. In some instances, it s not necessarily a compliance issue but instead, companies are just throwing away money due to out-of-date payroll processes. Businesses that are found to violate payroll compliance rules are likely to come under the scrutiny of tax authorities. Several major Australian companies have recently acknowledged payroll mistakes. Super Retail Group, owner of Rebel Sports, Supercheap Auto and BCF said it accidentally underpaid some staff a combined $7.9 million, and it would make back-payments, including interest to the affected staff 1. Cosmetics brand Lush also recently realised it had underpaid hundreds of employees more than $2 million after errors were made over an eight-year period, with some employees owed up to $10, These are high-profile cases which attracted media attention but businesses across Australia are realising they are also overlooking small things in their payroll processes, which can snowball into expensive remediation programs. This is where a payroll health check or payroll audit can benefit an organisation. A payroll audit by independent experts who will go through your payroll processes thoroughly can assist your company in fixing any discrepancies before regulators become involved. This could save businesses millions in overpayments, underpayments that need to be corrected or unnecessary tax

3 Sometimes, even the most responsible companies assume the payroll software they have purchased will ensure they are compliant with regulations. This is not always the case, as they need to be configured and modified depending on legislative and staffing changes. Everyone makes mistakes Ultimate responsibility for the correct payment of wages, tax and superannuation lies with the company, whether it has outsourced its payroll or not. Most companies take this responsibility very seriously. But, no matter how seriously you take it, can you be certain you are compliant, particularly if your systems have been in place for a long time without a review, or you have had payroll managers leave the organisation? Sometimes, even the most responsible companies assume the payroll software they have purchased will ensure they are compliant with regulations, like current industry awards or taxation rates. However, while there are requirements for payroll software vendors to ensure their systems are compliant, these systems are not a silver bullet and need to be configured and modified depending on legislative and staffing changes. Even the most advanced systems can produce incorrect calculations if a staff member has inadvertently entered incorrect information, or misunderstood the awards which cover your employees.

4 An expert payroll auditor can help give your business a clean bill of health or pick up the small changes that need to be made, ensuring your systems are up to date with current regulations. These small mistakes can often happen when a long-serving payroll manager leaves the organisation. Their replacement may be up to speed with all the relevant rules but, with staff changing jobs on average every three years 3, a few things are bound to fall between the cracks, particularly if they are used to other systems. This is where an expert payroll auditor can help give your business a clean bill of health or pick up the small changes that need to be made. A payroll auditor essentially runs a forensic analysis of your payroll systems to catch the small mistakes that someone who does not live and breathe payroll regulation may accidentally miss or may have forgotten to update. 3

5 Not just underpayment A lot of attention from the media traditionally focuses on the underpayment of staff. This is because it has a direct impact on them and their wellbeing. However, what many businesses do not realise is that small mistakes can often cost them in many different ways and, more often than not, it is regarding overpayment - whether it is overpaying staff or taxes. Businesses have lost hundreds of thousands of dollars by overpaying staff. In some situations, if these errors are not recognised within a certain time-frame, it may be very difficult or almost impossible to recover the money accidentally overpaid into their accounts. Even if the business can recall the money, it is going to leave a sour taste in employees mouths, as no one likes to return the money they thought was theirs. Additionally, companies which have unfortunately been forced to engage in a redundancy program could end-up paying unnecessary tax on redundancy payments if a small human error is made with their payroll software; the incorrect tick of a box could become expensive if these payments are being made to dozens of long-serving staff. What many businesses do not realise is that small mistakes can often cost them in many different ways and, more often than not, it is regarding overpayment - whether it is overpaying staff or taxes.

6 Avoid being the next example It is not only the threat of losing millions of dollars through incorrect payments businesses need to worry about if their payroll processes are out of date. Organisations may also face fines and penalties under employment and tax legislation, or find themselves before the Fair Work Commission if they have been careless with their payroll systems. The Fair Work Commission is motivated to make an example of businesses who have done the wrong thing knowingly or through the careless management of their systems, after several cases over underpayment were discussed in the media. Petrol giant Caltex recently repaid nearly $6 million to franchise workers after serious errors were detected 4, and workers at Flight Centre Travel Group, who claim they have been underpaid have decided to take the company to the Fair Work Commission, after their claims were discussed on an ABC television programme. As governments across Asia Pacific continue to look to protect workers and their rights, the risk of heavy fines or loss of brand reputation is very real. It is therefore imperative businesses take the appropriate steps to mitigate mistakes or careless errors. As governments across Asia Pacific continue to look to protect workers and their rights, the risk of heavy fines or loss of brand reputation is very real. It is therefore imperative businesses take the appropriate steps to mitigate mistakes or careless errors. Careless employers face serious ramifications. Additionally, individual staff members like a payroll manager can also be held personally liable in the case of a serious breach of legislation, potentially facing large fines 5. A payroll audit is a concrete demonstration that you take the process seriously. It shows you have taken all available steps to ensure the integrity of your system

7 Size matters Businesses of all sizes can benefit from a payroll audit. The owners of small businesses often have to wear dozens of hats. Managing product design, manufacturing, customer service and staff training does not leave much time for payroll system updates. Often small business owners are caught out by new regulations which are not widely advertised and may have been drowned out by the thousands of competing priorities they deal with on a daily basis. In the case of large companies who employ thousands of professionals, often across several industries, a small mistake can have big ramifications. The complexity of managing pay runs across multiple jurisdictions, business units, job types and regulatory frameworks makes it particularly difficult to identify the small mistakes, particularly with all the different payroll nuances across the Asia Pacific. The reality is that unless you have had a payroll audit in the past year, no business could be certain there is nothing is wrong. The reality is, unless you have had a payroll audit in the past year, no business could be certain there is nothing wrong.

8 How a payroll audit can benefit you and your organisation

9 Being the person to lead the charge shows you are in control of one of the biggest company expenses. Once a payroll audit has been conducted, you could find yourself saving the company thousands of dollars or mitigating a potential disaster waiting to happen. A proactive approach can position you as a leader Many payroll managers may not relish the thought of an audit. Who would want to be seen making mistakes? But, in actuality, taking a proactive approach to payroll by auditing your work positions you as someone who understands the importance of getting it right. It enables you to detect any minor errors before they spiral out of control and give you a bigger headache down the track. Rest assured that few organisations are perfect. Regulators know that mistakes are made and will often work with businesses who recognise them and take the necessary steps to make things right. This has been the case in almost all major payroll issues impacting Asia Pacific organisations in recent months. Payroll is also often your biggest cost, so it pays to take it seriously and diagnose any issues before they become an unnecessary financial burden. Being the person to lead the charge shows you are in control of one of the biggest company expenses. It also shows you are paying attention to the business s risk and compliance requirements, not just in your day to day tasks. Once a payroll audit has been conducted, you could find yourself saving the company thousands of dollars or mitigating a potential disaster waiting to happen.

10 Timing is everything With regulations continuously changing, software being updated and staff turnover meaning new people are taking charge of payroll, it is important to have a payroll audit every two-to-three years. Typically, organisations run deep-dive payroll audits every five years, which are usually triggered by an outside factor like renewing their enterprise service agreements. With regulations continuously changing, software being updated and staff turnover meaning new people are taking charge of payroll, it is likely there may be a few skeletons hidden away waiting to rear their head during this period. Ideally, a business would have a payroll audit every two-to-three years. Regulations often change and knowledge is lost when managers leave the business. These laws, especially taxation and employee awards, are extremely complex and need to be constantly updated. It would be difficult for anyone but a dedicated payroll expert to stay on top of every development. The good news is, in most cases, a payroll audit would take between 10 to 14 business days, depending on the nature and size of the business.

11 This process will be split between an analysis of the awards and enterprise agreements, which cover your employees, and then a payroll systems health check, especially the configuration of payroll software and data management. Generally, the system s analysis will involve little input from the business, so there s no need to worry about disruptions. After this process is complete, in most cases there will meetings between the auditor and payroll manager or head of human relations which often take between one and three days, to collect the necessary data to develop analysis and recommendations for remediation of any issues. It is critical businesses conduct regular deep dive payroll audits. At the end of the day, the cost of a payroll audit is much less than facing the financial implications of an underpayment. It is critical businesses conduct regular deep dive payroll audits. At the end of the day, the cost of an audit is much less than facing the financial implications of an underpayment.

12 Conclusion Any business may make payroll mistakes. Small companies are often run with a skeleton staff and do not have the time to become payroll experts, while large organisations have such complex systems that mistakes may be inevitable and expensive. Independent analysis of payroll processes, systems and enterprise agreements are vital. Businesses need the outside perspective from someone removed from the day to day running of the business. It needs to be conducted from someone that really understands the nuances of payroll. Not HR. Not accounting. But, a pure, dedicated payroll auditor. These specialists can identify the issues lurking behind complex systems and buried in the fine print, saving your business money and potential damage to your reputation. One of the biggest problems today is businesses do not think it will happen to them. They think buying a piece of software ensures they are compliant. But, the software is only as good as the person operating it - you need to put in the right information to get the right data out of it. Much like your tax return, you can t blame your accountant if you make up numbers. Payroll software is only as good as the person operating it - you need to put the right information in to get the right data out of it.

13 Whitepaper by Sandy Forrest, General Manager, Ascender Public & Enterprise Services, and Jason Low, Head of The Association for Payroll Specialists (TAPS). With more than 1.3 million customer employees being serviced by Ascender s payroll and HR platforms throughout the Asia Pacific region, approximately 1,400 global brands and listed companies across a range of different industries trust us to meet their payroll needs. We service these customers through 850 dedicated Ascender staff based in 10 countries, who have local payroll and HR knowledge and expertise across 7 languages to provide solutions to 31 country legislations. If you have any questions, please contact us at hello@ascenderhcm.com or call us at in Australia or in Asia. *Disclaimer The information and material contained in this document or on either Ascender s or TAPS websites are general in nature and cannot be relied upon as legal advice, nor is it intended as financial or tax advice. You are responsible for obtaining your own legal, financial and taxation advice with respect to the information contained herein and in particular whether there will be any impact on your business. Further, neither Ascender nor TAPS warrants or represents that the information contained herein is free from any errors or omissions. As such, both Ascender and TAPS disclaim all liability and will not, under any circumstance, be liable for any damage or loss related to, or caused (whether directly or indirectly) by, the accuracy, completeness or timeliness of the contents of this document. For the avoidance of doubt, you will solely assume the risk and liability of any actions that are taken in reliance on the information contained herein. Please note TAPS (being The Association for Payroll Specialists Pty Limited) acts in a nonrepresentational capacity for users of its services and attempts to provide operational solutions to payroll problems as they arise. All tax and financial solutions offered are of an operational nature and are not provided to satisfy any statutory obligations nor is any solution provided as conclusive legal, financial or tax advice. For example, you should consult a registered tax agent in preparing your tax return, as responsibility for your tax return, including its preparation, rests with you.