Payroll Mistakes That Could Cost You
As one of your largest business expenses and with a raft of different requirements, payroll, can be difficult to navigate and get right. Unfortunately, if not done correctly – it can also be costly.
As a business owner, you are aware that there are award conditions including minimum pay rates, penalties, allowances, record keeping and payslip obligations to be considered. But did you know that you could face fines and penalties where a breach of the Fair Work Act (including breaches of the National Employment Standards or a modern award) has occurred, and a monetary amount is involved with an employee seeking recovery through an eligible court?
What are the penalties
Some well publicised cases have seen some large penalties enforced lately, which can be detrimental to small business. If a breach occurs, in addition to paying the underpaid wages, civil penalties for breaches of the Fair Work Act are currently $63,000 per contravention for corporations and $12,600 per contravention for individuals.
Additionally, there has been a focus on consultants who may be providing services to employers, such as accountants and bookkeepers and holding them responsible for underpayments by their client for whom they are providing services, such as payroll.
A recent case saw accounting firm, Ezy Accounting 123 Pty Ltd, being held liable for the work they undertook for their clients in the prosecution by the Fair Work Ombudsman in the Federal Circuit Court case of Fair Work Ombudsman v Blue Impression Pty Ltd & Ors (Blue Impression case).
In the Blue Impression case, Ezy Accounting 123 Pty Ltd, provided payroll services to a Melbourne based food outlet, and the Fair Work Ombudsman sought penalties against the restaurant, the owner and the accountants. The alleged contraventions included breaches of the Fast Food Industry Award 2010, including failure to pay the minimum hourly rate and loadings.
In this case, the Federal Court agreed with the Fair Work Ombudsman that the accountants were knowing of, or involved in the breaches of the Fair Work Act by their client and were found to be accessorially liable. Accessorial liability means a shared responsibility and in this instance, Ezy Accounting 123 were an accessory to its client breaching the Fair Work Act.
Ezy Acounting 123, considered their role was data entry, bookkeeping and payroll processing with instructions provided from their client, and that it was not theirs, but the responsibility of their client, Blue Impression, to ensure its employees were paid correctly.
In this situation, the restaurant had previously been audited by a Fair Work inspector and the restaurant engaged a workplace relations specialist, which provided advice, making Ezy Accounting 123 aware of the details of the modern award and the correct rates to be paid to employees.
Judge O’Sullivan stated “I accept the FWO’s submissions that [EZY Accounting] had at [its] fingertips all the necessary information that confirmed the failure to meet the Award obligations by [the restaurant] and nonetheless persisted with the maintenance of its (payroll) system with the inevitable result that the Award breaches occurred.” Accordingly, the judge ruled that EZY Accounting 123 was an accessory to its client breaching the Fair Work Act, with penalties still to be determined as the case continues.
This case highlights the importance of getting payroll right and this can extend beyond the owners of the business, to third party consultants, engaged to provide services. Mistakes can be made, which is generally the reason for underpayments, given the complexity of different rates, award requirements etc.
If an error has been made the following steps will help you on your way to resolving
- Work out the period of time of underpayment and how any employees are affected
- Determine how much each employee was paid
- Determine how much each employee should have been paid
- Work out how much each employee has been underpaid
- Backpay the employee
- Importantly, stay up-to-date with any future wage increases
If you become aware of an error it is important to fix it quickly and ensure that your payroll is right in the future.