With Australia’s complex and constantly evolving industrial relations landscape, it’s no surprise that The Fair Work Ombudsman recovered $509 million of underpayments in FY2023. Payroll underpayments can be driven by outdated processes and systems which are manually led, labour-intensive and time consuming. Ironically, the proposed solution to underpayments is often the very cause of the problem in the first place: more manual processes, calculations and interpretations carried out by people, in Excel spreadsheets (insert face-palm emoji).
If you’re considering utilising automation in your wage compliance processes, here’s a major spoiler alert for the following blog post: it’s the only way! We're here to explain why, and how.
Why traditional compliance frameworks are failing
Reliance on payroll systems for compliance
The majority of payroll systems in Australia are not designed specifically for the nuances of the Australian market. Depending solely on a payroll system for compliance assumes flawless configuration to your specific compliance requirements, the capability to navigate complexities arising from legislation, awards, and EAs, and assumes that awards, EAs, and regulations are static.
We know that even the most sophisticated payroll systems require manual workarounds. Relying on these alone for compliance gives rise to underpayment risk.
Payroll is focused on getting wages out the door
Payroll isn’t a one-way street, but commonly the function is designed only to get payments out to employees. Organisations too often focus only on compliance during payroll processing and don’t check payroll outputs after the fact.
Issues with traditional payroll compliance risk detection methods
Sampling methods
Professional service firms commonly use sampling of employee data to assess wage compliance. Sampling in payroll auditing involves selecting a subset of employees and comparing their actual payments with what they should have been paid, using their time and attendance data. The idea is to assume that the sample represents the entire population accurately. But when we carefully examine the complexities of payroll compliance, it’s evident that sampling just doesn’t cut it.
Each employee's situation can differ significantly. For instance, one employee may be on holiday, while another might forget to log their clock-out time. Some employees may work additional shifts or agree to unique working conditions, which aren't captured in the sample. These variations make it challenging to draw reliable conclusions from the selected subset.
Certain roles might have specific minimum shift durations, but these requirements might not be adequately represented in the sample. For example, an employee called in for a 2-hour training session when a 3-hour minimum shift is required wouldn't be accounted for in the sampling process.
Internal wage audits
There are typically two types of internal wage compliance audits. The first is an internal review conducted by the payroll team itself, and the second is a review conducted by the internal audit team.
Reviews by payroll teams
While businesses may have competent internal payroll teams, the inherent human factor introduces risks. Conducting internal audits without external oversight lacks the fresh eyes and segregation of duties necessary to catch potential compliance breaches.
Reviews by internal audit teams
The problem we have seen with reviews conducted by internal audit teams is that they don't typically have a grasp of the nuances of payroll compliance issues and this can lead to the company having a false sense of security in relation to payroll compliance risk. In other cases, we have seen a limited scope for the internal audit team which can lead to the same problem, particularly if a sampling approach is used.
Reliance on spreadsheets with payroll audits
Traditionally, payroll audits are carried out manually by people and spreadsheets. Excel spreadsheets, though powerful tools, are still operated by individuals who can make typos and errors, impacting the accuracy of formulas. This, ironically, gives rise to future underpayment risk and can often fuel the core issue.
Changing expectations: embracing technology for compliance
In a new era of wage compliance enforcement, businesses are redefining their approach to compliance. Technology is now more trusted than ever, and the expectations of businesses are changing accordingly. Law firms, historically reliant on Excel sheets for wage reviews, are recognising the limitations of manual methods and turning to automation for a more efficient and accurate solution.
Organisations, who may engage law firms of professional services firms to support wage reviews, are expecting more efficient solutions and no longer want to pay for the hours logged by individuals spending unnecessary time on manual tasks.
Why automation and technology are vital for detecting compliance risks
Enter automation—the game-changer in the realm of compliance. By automating the wage compliance review process, businesses can seamlessly integrate checks into their normal operations, reducing the risk of human error.
- Speed and efficiency: Automation allows for a speedy and repeatable process, identifying compliance risks early in the game.
- External oversight: Having a non-human entity conduct the review eliminates the biases, habits, and rituals that humans may bring into the process. This fresh perspective provides a crucial layer of objectivity.
- Elimination of manual tasks: Automation eliminates the need for labour-intensive manual tasks, freeing up valuable time and resources that can be redirected towards value-adding work and business as usual.
- Segregation of duties: Unlike internal audits prone to human error, third-party automated technology ensures a clear segregation of duties, reducing the chances of repeat compliance breaches.
- Complete reviews: Utilising technology in the review process enables organisations to review an entire payroll data set rather than merely a sample.
The automated solution to compliance
How does an organisation implement automation and technology into their compliance framework? Contrary to popular belief, organisations don’t need to completely overhaul their payroll systems to ensure compliance.
Yellow Canary enables large Australian employers to streamline compliance across employee payments, entitlements and Long Service Leave.
Our Always On Compliance (AOC) platform automates monthly reviews, comparing what was paid, to what should have been paid, according to the employee’s modern award, enterprise agreements or industrial instrument. Unlike traditional approaches, Yellow Canary covers every employee in your business, rather than just relying on a sample review.
The AOC platform generates variance and driver reports which enable our clients to rapidly address any issues, avoid protracted remediation projects, and demonstrate to stakeholders and regulators that payroll compliance issues are being addressed.
In a new era of workforce compliance, Yellow Canary is helping employers do right by their employees, whilst avoiding hefty penalties incurred by unintentional underpayments. We’d be happy to support with any inquiries you have about ongoing compliance – just get in touch.
