By Adrienne Silla | Head of Advisory, Australian Payroll Association
When a business discovers a payroll issue, the first instinct is often to ask: How much do we owe our employees?
It is an important question, but it is not necessarily the first question that should be answered.
Before a business can calculate what employees may be owed, it needs to understand what happened, which employees were affected, what they were actually paid, what they should have been paid, and over what period. That requires good-quality data and reliable records.
And this is where many payroll remediations become much more complicated than expected.
The data can be the biggest challenge
A remediation may sound straightforward, obtain the payroll data, run the calculations and identify any underpayments. In practice, gathering the right data can take considerably longer than expected.
Payroll systems change. Businesses move from one system to another. Historical records may be archived or difficult to extract. Employee files may contain information that does not match the payroll system. Rosters and timesheets may be stored separately. Pay codes may have changed over time. Enterprise Agreements may have been replaced. Employees may have changed roles, employment types or classifications.
You can have a sophisticated remediation methodology, but if the underlying data is incomplete or inaccurate, the results will only be as reliable as the information going into the calculation.
The simple rule is garbage in, garbage out.
This is why data gathering should not be treated as an administrative exercise at the beginning of a remediation. It is a critical part of the remediation itself.
What happens when the data isn't available?
One of the most difficult situations is when a business does not have complete historical records. That does not necessarily mean a remediation cannot proceed. However, it does mean decisions need to be made about how the missing information will be addressed. For example, if historical timesheet records are unavailable, it may be necessary to consider whether another source of information can reasonably be used. Payroll records, roster data, employment records, previous payroll practices and other available evidence may all help establish what occurred.
There may also be circumstances where assumptions need to be made. This is where the methodology becomes particularly important. Where an assumption is required because information is unavailable, it should not simply be the assumption that is easiest for the business or produces the lowest liability. A remediation should be approached fairly and transparently, with assumptions that appropriately protect affected employees. The objective is not to create the biggest possible liability. It is to reach a defensible and fair outcome based on the evidence available.
Don't underestimate the importance of record keeping
A payroll remediation can uncover a broader business lesson: good record keeping is a payroll compliance control. It is difficult to demonstrate that employees were paid correctly if the organisation cannot produce the records needed to support that conclusion.
This is particularly important where payroll calculations depend on information outside the payroll system. Hours worked, classifications, allowances, overtime, breaks, work patterns and changes to employment conditions may all be relevant to determining an employee's correct entitlement.
Records also become increasingly important as time passes. A payroll issue that existed several years ago can be much harder to investigate when the people who managed the payroll have left, the payroll system has changed and historical documentation is difficult to locate.
A remediation can therefore become a significant exercise in reconstructing the past.
Legal advice should be part of the framework
Payroll remediation is not simply a matter of putting numbers into a spreadsheet. There can be important legal and compliance considerations around the methodology, the period being reviewed, how missing data is treated, interest, superannuation, taxation, employee communications and the approach to remediation. For this reason, legal advice should be considered as part of the remediation framework, particularly where the issue is significant, historical, complex or may involve regulatory engagement.
Payroll specialists and lawyers bring different expertise to the process. The payroll team understands how the payroll operated, how entitlements are calculated and how the issue needs to be translated into payroll processes. Legal advisers can provide guidance around the legal obligations, methodology, risk and communications. Bringing those perspectives together can help ensure the remediation is both technically sound and appropriately governed.
Remediation is more than paying the money
It should also answer, Why did this happen, and what are we changing so it doesn't happen again?
That may mean reviewing payroll system configuration, pay rules, Award interpretation, employee classifications, processes, controls and governance. For businesses dealing with significant payroll issues, there may also be interaction with the Fair Work Ombudsman and, in some circumstances, enforceable undertakings or other regulatory processes. These situations require careful planning and an understanding of what evidence and methodology will be needed.
Don't do it alone if you don't have the experience
The right expertise can make a significant difference to the quality of the outcome, particularly where the review covers multiple years, large employee populations, complex industrial instruments or significant amounts of money.
At Australian Payroll Association, we have extensive experience supporting organisations through payroll remediation, including reviews aligned with Fair Work requirements and assisting businesses during regulatory processes such as enforceable undertakings.
We can work alongside your payroll, HR, finance and legal teams to help establish the methodology, assess data quality, interpret payroll rules, undertake calculations, document assumptions and identify the controls needed to prevent the issue from recurring.
Because when it comes to payroll remediation, the quality of the result depends on the quality of the information, the methodology and the expertise behind it. And sometimes, the most important investment a business can make at the beginning of a remediation is not starting the calculations sooner. It is making sure they are being done properly.