The risks of employee self claim systems

Though the heading seems somewhat sensationalised, it is not too far from the truth. Self-claim is often seen as the answer: yes, let's reduce the workload of our payroll and labour teams and empower our employees by allowing them to claim for their entitlements. This is the innovation we’ve been waiting for!

Suddenly, payroll processing is streamlined, you’ve cut out the pesky paper-based timesheets or those electronic timesheets that too often got submitted by the site managers after payroll cut-off anyway. Your employees are happier that they’re getting paid their allowances and overtime on time, your payroll team are less stressed in payroll week and your executive team are seeing a reduction in payroll costs. Smiles all round.

Well… smiles all round until one week when your new payroll manager familiarises themself with the self-claim system and pay codes. Your new payroll manager asks you ‘what’s this ordinary overtime pay code?’ to which you stare at them blankly in response to the oxymoron. Huddling over the laptop you indeed also see the ‘ordinary overtime’ pay code with different employee claims across an assortment of different loadings. That pay code alone is a mess. Uh oh.

After a lengthy wage review, it turns out that pay code were the tip of the ‘self-claim’ iceberg resulting in a multi-million dollar remediation payment to your workforce. Those cost savings and efficiencies from implementing the self-claim system were quickly eroded by the remediation payment. It is not an enjoyable situation to be in when the driving factors to implement the self-claim system were to streamline processes and make your people happier.

What is an employee self-claim system?

Employee self-claim systems, or employee self-service systems as they are also known, are payroll systems that allow employees to manually claim certain entitlements such as overtime or allowances. Self-claim modules within payroll and HR systems have risen in popularity in recent years as organisations seek to streamline processes, reduce the workload of their payroll, HR and labour teams and move away from paper-based systems.

In self-claim systems, your employees can claim their entitlements directly in the payroll system as they arise. The claims are then reviewed and approved by delegated personnel. They are common for employees paid via auto-pay within the payroll system and salary based workforce cohorts. The extra hours or entitlements that are claimed are typically captured in the payroll data rather than a separate time and attendance system.

For example, your Contact Centre employee may be required to stay back two hours later to cover another employee that had to leave early. At the end of the shift, the Contact Centre employee logs into the self-service portal and claims for the extra two hours worked. This claim is reviewed and approved by the employee’s direct manager or payroll team, or is sometimes not required to be reviewed at all and may be sent straight through for processing.

What are the benefits of self-claim?

Self-claim systems are attractive for several reasons:

• Replace manual approval processes: historically, if an employee worked additional hours they would need to complete a form or add the extra hours to their timesheet, send it to their manager for review, their manager would individually sign and approve each request, then bundle all the requests and manually submit to payroll for processing. This was a cumbersome process and often the forms were submitted late to payroll, would miss the cut-off entirely or payroll needed to follow up with the manager directly to chase forms that had not been signed.
• Streamline and scale processes: there is pressure on organisations to embrace automation to streamline processes and free up the time of employees to focus on high value work. Self-claim is often seen as an answer to automating the important though low value work of approving overtime and allowances so managers can focus on managing, rather than administration. It also allows an organisation to scale their payroll and HR function as it transfers the effort from the payroll and HR teams to the individuals making the claim.
• Reduce payroll costs: investing in a technology solution through self-claim rather than hiring more people to process payroll reduces indirect payroll costs and arguably by placing the responsibility of claiming on employees it also reduces the direct payroll costs.
• Happier employees: self-claim systems allow employees to easily claim their entitlements from their mobile so they are paid on time, instead of the approvals getting held up by their manager. Self-claim also cuts out a significant pain point for your payroll team as they no longer need to chase up the forms, manually enter the claims or engage in the tiresome follow-up of outstanding forms.

The traps of self-claim

No solution is entirely foolproof and even an automated solution like self-claim requires oversight to ensure you aren’t caught by the unintended consequences.

There are a number of traps you may encounter when using a self-claim system:

• Lack of understanding or training: the nature of a self-claim system assumes that an employee has sufficient knowledge of their entitlements, which is a big ask. Instruments are complex and tricky enough for your payroll team and lawyers to understand, let alone your employees. If an employee works additional hours on a Sunday, should they claim for the Sunday penalty or Sunday overtime? Or would it be different depending on whether the extra hours were at the start of the shift as opposed to the end? Is that a different code?
• Errors: self-claim systems are supported by mobile apps making it easy for the employee to claim the extra hours. As with any manual input you are prone to error from clumsy fingers or autocorrect, and two extra hours could be accidentally entered as 12 extra hours, or your employee may select the wrong code. It happens. This error can be easily missed or not picked up at all if the claims go straight through for processing.
• Timing of claims: your employees are busy, like you. They may forget to enter their claim on the day, they may forget to submit it before payroll cut-off or they may never get round to it. In this scenario the claim and therefore payment will be late, and the employee has been underpaid for that period.
• Multiple claims in one entry: every employee is different; some fastidiously file their claims at the end of every shift and others may prefer to submit a weeks’ worth of claims in one entry. The latter may be a minority, but they will cause the most problems in your wage review. Let’s say one of your casual employees has worked 5 consecutive shifts in the week with the last on a Sunday, and they must claim for all hours worked. What happens if that employee enters all their hours for the week in one entry? In their mind, it’s fine, they’ve entered all the hours for the week, what does it matter? In this case, the casual employee is guaranteed to be incorrectly paid. Regardless of what code they have put the hours to, they’re likely to have worked a mix of weekdays, weekends and possibly overtime all subject to different rates.
• System controls and parameters: in the above example, you may have thought ‘surely the system would flag that as an exception?’. It’s a great question. The answer is ‘maybe’. You may have set a control in the system that flags claims over a certain number of hours, though it’s likely you don’t have a control in place to flag exceptions around the allocation of those hours. Off the shelf systems are not configured for the unique conditions of your operations and even if they were, the ‘one size fits all’ approach may not fit all business units using the self-claim system.
• Ability to track and validate: self-claim entries are hard to track and validate as they are typically designed to capture payroll data, not to act as time and attendance data. This creates problems as you may not have visibility or be able to rely on the number of hours claimed, the date claimed or the start and finish times (if you have them). In the presence of these systems, you also may not have any source data like rosters or timesheets to validate the entitlements against, making it difficult to validate the accuracy of the entries.
• Oversight and monitoring: depending on the size of your workforce it may not be practical to track and validate all the exceptions in the self-claim data in the short window available between claims being submitted and pays being released. As an organisation, that may be a risk you are willing to accept. Increasingly, the Fair Work Ombudsman is signalling their expectation that all employees are paid correctly regardless of an organisation’s risk posture.

This list is by no means exhaustive and one thing you will find out is that the traps you encounter will be as unique as your employees making the claims. Such is the nature of a system that has significant scope for individual inputs and manipulation.

Again, this raises the question of: how do you navigate the balance between embracing automation to streamline processes and meeting your regulatory and legislative obligations?

What to do?

If you have a self-claim system for employees to claim their entitlements, get on the front foot and conduct a wage review to ensure your employees have been paid correctly, rather than allowing the issues to compound over time and become more costly. In the presence of the traps above, it may not seem like an easy task. We get that. We’ve seen the traps and tricks of self-claim systems before and can help you navigate them to get through the wage review with confidence.

The retrospective wage review focuses on correcting the past, and an effective and efficient approach needs to be taken in the future to provide you with confidence in your ongoing compliance. Using RegTech provides a fast, scalable and accurate solution that makes it easy for you. We can help you with this through our ‘Always On’ compliance offering which is an automated “BAU” monitoring process requiring a low level of continuing effort from you and your team.

If you’re concerned about your self-claim system and want to understand what you can do about it, 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.