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Overpayments might seem like a happy accident for employees — a little extra in the bank, no complaints.
But for organisations aiming for payroll accuracy, overpayments are rarely isolated events. Often, they signal something deeper and more problematic: inaccuracy. When payroll is not accurate, underpayments are usually hiding in the shadows.
In this article, we explore why overpayments should trigger compliance alarm bells, and what organisations can do to get ahead of both over- and underpayments.
Why are overpayments a red flag for underpayments?
At Yellow Canary, we’ve reviewed payroll data for over 100 organisations, and we have found a consistent pattern. Common errors of overpayments include:
- Inaccurate or incomplete employee data such as incorrect pay classifications
- Incorrect payroll system settings, where automation rules do not reflect current agreements
- Delays in updating employee changes such as termination or role changes
- Misunderstood or misapplied awards and enterprise agreements
- Manual payroll processes without adequate checks
While this is not an exhaustive list, these same issues also cause underpayments — which means that wherever overpayments exist, underpayments are often present too.
Think of it like a payroll variance dashboard. The central line represents perfect accuracy. Dots above the line are overpayments; dots below are underpayments. The further those dots drift, the less confidence you can have in the integrity of your payroll process.
An example: Not all ‘overpayments’ within awards are overpayments
Consider this example: a Level 3 aged care worker is paid $30 per hour, while the relevant award rate is $26 per hour. At first glance, this might appear to be an overpayment. But payroll compliance is rarely that straightforward.
Employees are often paid above the award rate due to market conditions, recruitment pressures, or enterprise agreements. So, the real question is not simply, “Are they paid above the award?” — it is “Are they being paid more than what they are contractually entitled to?”
If the employee’s contract stipulates $30 per hour, then that payment is accurate and compliant—not an overpayment. Overlooking this distinction can lead to false positives in overpayment analysis.
How to prevent overpayments (and uncover underpayments)
Tackling overpayments is not just about catching the obvious errors — it requires a strategic approach that considers both contractual entitlements and operational realities.
Here is what that looks like:
1. Reconcile against contracted rates
Do not just compare wages to award minimums. Awards set the legal floor, but payroll must reflect the agreed rate in each employee's contract. Starting with contracted base rates provides a more accurate benchmark for identifying genuine discrepancies.
2. Identify workforce planning inefficiencies
Consider this scenario: A senior executive earning $200 per hour steps in to operate a forklift and move pallets—a task typically performed by someone earning $30 per hour.
From a contractual perspective, there’s no issue—they’re being paid exactly what their contract stipulates. However, if the task is assessed based on the skill level required and the nature of the work performed, the actual cost of labour for that task is effectively $170 per hour higher than necessary.
This is where there needs a deeper level of insight — one that identifies:
- Which tasks need to be done
- What skills those tasks require
- Who has those skills
- And how those people are being paid
Without this kind of skill-to-task-to-award reconciliation, those inefficiencies — and overpayments — remain hidden. That is where payroll accuracy intersects with smarter workforce planning, and where organisations have a real opportunity to integrate the two more intelligently.
3. Implement robust compliance frameworks
To prevent both over- and underpayments:
- Reconcile regularly: Cross-check actual pay against contractual and award entitlements.
- Map tasks to skills: Make sure employees are doing work that matches their skill and pay level
- Audit systems: Regularly inspect payroll settings and configurations
- Stay compliant: Keep up with evolving awards, agreements, and legislation
- Train teams: Equip payroll staff with up-to-date knowledge on compliance
- Automate where possible: Use reconciliation tools to minimise manual errors and boost visibility
Overpayments: A warning sign
Overpayments often reveal deeper issues—ranging from data inaccuracies and system misconfigurations to gaps in workforce planning. And importantly, the same underlying errors that cause overpayments are frequently responsible for underpayments as well.
When organisations view overpayments not just as financial anomalies but as indicators of broader compliance risks, they open the door to a more strategic, system-wide response. Strengthening processes, improving visibility, and cross-functional alignment becomes far more achievable.
Confidence in payroll does not come from assumption—it comes from insight. And overpayments are often the first clue that there is more beneath the surface, including hidden underpayments waiting to be uncovered.
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