8 Common Payroll Management Mistakes in Australia (And How To Avoid Them)

When it comes to payroll, there’s always a risk of human error. With so many different factors and regulations to take into account, it’s easy for something to go unnoticed or fall through the cracks. Every employee represents a cost for your business, which is why effective payroll management is essential. Without an organised system in place, you risk overpaying staff members, forgetting statutory deductions and failing to meet your obligations as an employer. The unfortunate truth is that most businesses aren’t exactly great at managing their employees’ paychecks. It’s a common mistake with serious consequences.

33% of organisations surveyed by the Australian Payroll Association (APA) recently revealed that one in three (33%) make a mistake every pay run, and 21% make the same mistake every quarter. It is estimated that 41% of employees discover payroll mistakes on their own as they do not receive an alert from payroll managers. While mistakes are discovered by employees in 45% of instances, they are not discovered by payroll managers in many cases. Employees are typically paid late as a result of mistakes made by smaller companies, in contrast to larger companies. The APA discovered that the most typical types of payroll mistakes happen in the welfare, healthcare, and disability services sectors. All three industries admit to making mistakes 43% of the time. Beyond the obvious monetary consequences of underpayment, a separate study revealed that 25% of employees will look for work after two paychecks are incorrect.


Errors In Payroll Setup


As with any part of your business process, the foundations of your payroll setup are critical. If they’re not up to scratch, the rest of the system will be significantly hindered. The first thing to consider is whether you are best served by outsourcing your payroll or keeping it in-house. There will be pros and cons for both. If your company is quite small and you have a limited number of highly skilled staff with the necessary knowledge for payroll, outsourcing may be the best option for you. If you have a large number of employees, though, or you require a high degree of accuracy and detail in your payroll, keeping it in-house may be the better option.

This is not just a financial decision but also a logistical one. If you are keeping your payroll in-house, you’ll need to make sure you have the right setup in place. This includes making sure your data is organised and easily accessible. You’ll also want to make sure you have the right software in place.

That’s why it’s crucial to have a clear understanding of all the rules and regulations around payroll. By setting up your systems correctly, you can easily avoid all the following potential pitfalls.

Ineffective Time-Tracking


Despite living in the digital age, more than 25% of firms still use paper or a spreadsheet to manage employee work hours. Systems that function on paper require a significant amount of time to execute and are vulnerable to human mistake. They are particularly vulnerable to time theft because workers are able to alter the start and finish of their shifts or their break times.

Employees are entitled to be paid for their time. And if you don’t have a system in place to track their hours, it’s incredibly difficult to determine exactly how much time they’ve worked, make sure you have an organised system in place. Depending on the type of business you’re in, you’ll need to take a few different factors into account. If you’re in a service industry, for example, you’ll need to account for things like lunch breaks and other types of breaks. In a manufacturing industry, you’ll need to account for things like machine downtime.

Additionally, paper systems are difficult to audit and upgrade. Most importantly, paper systems do not integrate with existing HR functions, making them largely impossible to use for performance management and onboarding. What are the benefits of electronic time tracking? Electronic time tracking systems allow for accurate and detailed recording of employee hours. They are easy to use and can be tailor-fit to your company’s needs. Time tracking software also integrates with your HR, onboarding, and performance management systems, allowing for a comprehensive view of your company’s operational data.

Incorrect Deductions


Certain deductions are mandatory, and others are voluntary. You need to know your obligations as an employer, and you need to be sure you’re making the right deductions. Depending on your industry, some deductions might be mandatory, while others could be voluntary. You also need to ensure that the amounts you’re deducting are legitimate. If you don’t know the rules around payroll deductions, it’s incredibly easy to get them wrong. And if you over- or under-deduct, you could end up owing your employees money—or vice versa. You also need to make sure that you’re following the correct process when making deductions. For example, if you’re deducting money from an employee’s paycheck for a loan, you need to make sure the process is legitimate.

Have you gotten the employee’s employer to sign off on the loan? Has the employee agreed to repay? Make sure you’re not putting your employees in an uncomfortable situation. They might resent being forced to take out a loan, or they might feel pressured into taking out a loan. If they don’t want it, they might feel like it goes against their rights.

Incorrect Payroll Calculation


Your payroll calculation has a huge impact on how much your employees are actually taking home. If you don’t know how to correctly calculate payroll, you risk paying your employees too much, or paying them too little. If you’re calculating payroll manually, there are plenty of common errors you can make. For example, you might forget to include overtime in your calculation. You might also forget to take things like deductions and benefits into account. Your payroll software should be able to automatically calculate payroll. That way, these common mistakes are largely avoided.

For example, if you manage a Shopify store, you may have a team of support staff who work a few shifts per week managing support tickets, an inbound marketing manager who works 20 hours per week generating new leads, and an e-commerce manager who works full time in your corporate office running your shop’s operations. With so many various pay systems, it may be difficult to keep track of which taxes must be paid, for whom, and when.

Miscalculated Tax rates


Tax rates can change each year (and some do!). Unfortunately, those changes can cause payroll issues (and a mistake on paycheck) if you do not keep track of the tax rate changes. When you pay the wrong rate, you must make up the difference in owed taxes. And, you might also have to pay late fees, penalties, or interest on the taxes you owe. 

Every state has different wage laws and rules—and, as an employer, you’re required to abide by the laws and rules for the state where your employee works, not the state where your company is based. A simple way to avoid this is by keeping accurate records based on states your employees are based in. Otherwise if you fail to pay an employee in accordance with their state’s minimum wage rules, you will be liable for any and all back pay owing to that employee. Furthermore, if your withholdings were inaccurate and you did not pay your taxes, you may be liable to the relevant tax authorities for fines and interest.

Incorrectly calculating the tax rate is an incredibly common mistake. It can result in employees either paying too much or too little in taxes. Unfortunately, it’s a mistake that can be extremely difficult to fix. That’s because if you’re over- or under-taxing your employees, you’ll need to go back and correct every single paycheck they’ve received since the start of the year. If you know the tax rates you need to apply, however, you can avoid this mistake altogether.

Lack of Transparency


A lot of employers assume that as long as they’ve correctly calculated payroll and are paying their employees what they’re owed, everything is fine. But that’s not the case. It’s also important to be transparent about the details of your payroll setup. 

Explain to your employees why they’re being paid the way they are. Employees must be made aware of the breakdown of their salaries and how it is being calculated. When it comes to transparency ensure that they have a knowledge on how income is calculated and how leave, tax, bonuses etc affect the payroll. If you’re using a third-party payroll service, make sure you’re aware of what information they’re collecting. It’s important to keep your employees in the loop as much as possible. They need to know what’s happening with their paychecks, and they need to know how their pay is calculated.

Improper HR Practices


HR practices are extremely important, especially in an industry like payroll. If you’re not following the correct HR practices, you could actually be in breach of employment law. For example, if you’re not documenting all of your employment contracts correctly, you could be leaving yourself open to lawsuits.  The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 significantly increased fines and liability for such breaches. 

By documenting the hiring process and all other HR practices properly, you’ll ensure that your business is operating within the law. In addition, you’ll be able to keep your business compliant with all necessary laws. Ultimately as a business you need to ensure that the HR department and Payroll managers have the qualifications and adequate training to handle payroll management.

Missing Payroll Deadlines

Missing Payroll Deadlines

You might be wondering why payroll deadlines are important. Well, they’re actually incredibly important. If you miss your payroll deadlines, you could face stiff penalties and potential lawsuits. Depending on where you operate, you have different payroll deadlines. You need to make sure you’re meeting all of them. It might be tempting to push back your payroll deadlines as a business. But it’s not worth the risk. As long as you’re managing your payroll effectively, you should be able to hit your payroll deadlines.

If payroll is delayed it could put your cash flow in trouble, which means that paying those penalties may be difficult for you.

If you are considered a large employer and don’t pay on time, there could be even more severe consequences for not paying on time. You could end up in jail for nonpayment of payroll taxes. Your employees may also have their taxes withheld from their checks because of the fines that have been levied against your company for not paying on time (although these fines can be taken out of any tax refund that has been withheld). In addition to these types of fines and fees, there is also the likelihood that the ATO can levy fees against you if they find out about outstanding payments due to them from workers who aren’t being paid their wages through regular paychecks. These types of fees can add up quickly if they are levied against many employees at once!

Bottom line: By staying vigilant, you can easily avoid these errors.

With an efficient payroll management process, you can reduce the risk of human error and streamline the payment process for your employees. It’s essential for every business to have a well-organised payroll process in place.

A well-organised payroll system will help to reduce the time it takes to process each employee’s paycheck. It will also help to reduce the risk of processing an incorrect paycheck. An efficient payroll system will also help to reduce the stress that comes with the process of paying your employees each week. For example, a system that enables employees to view their pay stubs online will help to reduce the stress and anxiety that some employees feel about when their next paycheck will be processed.

You can avoid potential problems and give yourself a competitive edge with a streamlined payroll system. A well-designed payroll management system will reduce the risk of error and help save money.

If you’re looking at stocking up on inventory, hiring new employees or expanding your business, then you must have a solid payroll management system in place.

A payroll management system gives businesses the tools they need to pay their employees accurately and on time. When payroll is managed accurately, it can help eliminate payroll errors, which can lead to potential lost revenue and bad brand names.

The first step in designing a payroll management system is to evaluate the workforce and its needs. You’ll need to know what type of employees you have, how many of them there are, and the critical operational tasks they perform. When you have this information, it’s possible to make an informed decision about what type of payroll management system would best suit your business.