We get asked this question a lot: "Why can't I audit my payroll while I run it?".
It’s usually asked in the following context:
‘We have *insert expensive payroll platform* and it has built-in compliance functionality. We have a great payroll team and great in-house IR/ER expertise. Why do we need to keep checking? Why can’t we audit as we go?’
There are many reasons why you cannot audit as you go, just like you cannot audit your financial statements as you are preparing your balance sheet.
In a nutshell, here are the 5 key reasons why it is impossible to audit payroll as you go.
Change is constant
Employment laws in Australia are incredibly dynamic. New legal decisions are handed down every day that:
- impact how modern awards and enterprise agreements are interpreted
- create new provisions, or change existing provisions, in modern awards and enterprise agreements
- impact the ways tax and superannuation are applied and treated
This means that the way your business interpreted a particular provision in a modern award or enterprise agreement a few weeks ago may no longer be tenable or reasonable, or that the provisions applying to your employees have been updated or removed. Whatever the case, given the speed of evolution of Australian employment laws and instruments, it is simply not possible to effectively audit payroll as you go.
You can’t check your own homework
The system that processes your payroll will check that it has been processed in accordance with the rules that is used in the first instance (and round it goes in an infinite loop). Those rules may be wrong or outdated. Your data might be being ingested or ‘read’ incorrectly. You may be relying on assumptions in your calculations that are no longer valid. None of this will be picked up if you are the one checking your own payroll compliance – checking your own homework here simply does not work.
Good rule, wrong circumstance?
A lot of payroll compliance issues occur when a ‘correct’ rule is applied in the wrong circumstance. Consider an employee claiming 150% overtime instead of a 150% shift penalty. The shift penalty attracts superannuation whereas the overtime does not, resulting in a superannuation compliance issue for their employer – even though there is no actual wage underpayment evident. Issues like this happen regularly because the payroll system you use is usually a one-size-fits-all solution – it’s simply not designed to consider the specific awards or instruments applying to your employees.
Time to reclassify
A key driver of underpayments of wages and salaries is that employees are incorrectly classified in the first instance. The relationship between an employee’s job title and their award or enterprise agreement classification is regularly evolving – it will rarely remain static. It is vital that you regularly review your employees’ classifications and make sure changing classifications have been picked up and effectively managed in your payroll system.
Take a step back
Payroll systems ‘think’ pay period to pay period and execute rules on that basis. When you have an employee who is paid fortnightly but an award that has a rule that triggers over a 28 day period, you end up with alignment and rule application issues. For this reason, it’s important to take a ‘step back’ and ensure a holistic approach to payroll compliance – for example, compliance checking on a monthly or quarterly basis – that considers the needs of your business, and the award and enterprise agreement coverage of your employees.
These are just some of the reasons why you cannot audit as you go – and why you might struggle with payroll compliance even with the best intentions and first-rate in-house capabilities. We know you want to meet your obligations to employees and avoid issues compounding over time. Yellow Canary’s platform is tailored to the requirements of your workforce, ensuring regular and consistent compliance checking.
If you would like to understand the tailored options available for your business, please contact us and we’ll give you a call.
* Yellow Canary content on this website is intended solely for the purpose of offering commentary and general knowledge. The content is not intended to constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.