Big firms face flood of back pay to employees

Scores of major companies might have to make back payments following payroll audits.

Scores of major companies might have to make back payments of wages and superannuation to staff following audits of their payroll functions ­triggered by the introduction of a hi-tech system for reporting salary payments to the Australian Taxation Office.

The digital Single Touch Payroll (STP) reporting system ­requires employers to electronically send payroll information including wages, salary payments and superannuation to the ATO at the same time as their normal pay run.

The system came into effect for big companies in July last year; small businesses have been required to use the new reporting system since July 1 this year.

For many big companies with older legacy operations, the change has meant the introduction of an entirely new payroll system, while others have ­chosen to upgrade or outsource their payroll functions.

One chief financial officer of a major company said yesterday the firm was using the transition “to dig deeply into our payroll calculations to ensure our ­system is set up correctly”.

“It is identifying there are things that have not been set up correctly for the change to the new system and in the process finding other errors,’’ the executive said.

While the transition to the STP system was not a factor in the revelation this week by retailing giant Woolworths that more than half its supermarket staff on annualised salaries were underpaid up to $300m, The Australian understands it played a part in bringing other underpayment cases to light.

In recent months, firms such as Super Retail Group, Qantas, ABC, Thales, Wesfarmers and its hardware subsidiary Bunnings have self-reported to Fair Work Australia after discovering ­under­payments of wages, super and other entitlements to employees, tracing back to the introduction of the modern awards system in 2010.

Andy Hutt, director in the economics and tax centre at ­accounting giant KPMG, said: “We are certainly helping clients with this sort of transition and we are observing them going through the mechanics of how they are paying people.

READ MORE: Beyond hopeless: Porter slams Woolworths’ $300m underpayment | Kelty slams push by ‘self-interested’ bosses to simplify awards

“Some are finding issues not only in the tax and super side but in not having paid the right gross amount of salary and wages in the first place based on the ­employment agreement.”

The Inspector-General of Taxation, Karen Payne, said she expected small businesses would find the transition to the new ­system more difficult than big firms. “I have the single touch payroll system on our radar for review at some stage,’’ Ms Payne said yesterday.

“It is a big system change. You would expect we would want to make sure that after a year it is working properly.”

A senior tax adviser said yesterday: “One of the catalysts for recognising the historical errors is changing systems. Payroll is complex and what we are seeing here is that smaller errors are being ­extrapolated over a large workforce, which then represents significant amounts of money.”

In August, accounting firm EY said it had fallen more than six months behind in making superannuation payments for hundreds of staff because of ongoing problems with its newly outsourced payroll function. The firm, which handed its payroll function to multinational services provider ADP, stressed at the time that all of its more than 6000 staff would receive their super ­entitlements as soon as possible.

Awards too complex

Australian Retailers Association chief executive Russell Zimmerman said the recent rush of voluntary disclosures again highlighted the problems with the modern award system, which was introduced almost a decade ago.

“These big companies, in the majority, have self-reported,” Mr Zimmerman said. “These are ­errors or mistakes they have made and they haven’t done it on purpose. Self-reporting is proof they have done this unwittingly. They haven’t had Fair Work knocking on their door.

“Because it is so complex, you can miss something. It is not until a PwC or whoever does an audit do you realise there is an issue. It is just too complex.

“We need the industry to get together with government and Fair Work, take the complexity out of it and make it simple.”

The Shop Distributive and Allied Employees Association has rejected employers blaming of complex awards, saying it had been concerned about salary settings for salaried staff in the retail industry for some time.

Attorney-General Christian Porter said on Wednesday there were no valid reasons for employers failing to meet their legal obligations. The Fair Work Commission has spent the past decade simplifying awards and reducing their number from more than 3000 to just 122.

About 30 businesses have self-disclosed underpayments to the Fair Work Ombudsman in the past two years, which Fair Work Australia director of knowledge Cletus Bro said recently was the result of their failure to invest in compliance or regular audits.

Mr Bro said the increase in voluntary disclosures was party due to concerns about brand damage, but other business leaders said FWO’s more public hard line about their priorities and concerns on underpayments was also leading companies to more proactively review their operations.

Employers also started self-­disclosing underpayments to the FWO after laws took effect in late 2017 significantly increasing fines and liabilities on under­payments.

In early October, Wesfarmers revealed it had underpaid thousands of workers in its industrial and safety arm by $15m over a decade because of payroll errors. The Perth-based conglomerate had been working for nine months validating the initial payroll anomalies, identifying the extent of the issue back to 2010 when the modern award system was introduced, and then calculating the payments owed — including interest — before it publicly disclosed the issue.

Multiple industrial agreements cover the 2000 current workers in the four businesses in the division: Blackwoods, Workwear Group, Coregas and Greencap. Four thousand former employees were also affected.

The company has previously noted that complexity of the system was not an excuse for not paying people correctly.

Roger Gillespie, patriarch of the $700m Baker’s Delight bakery franchise business, has previously expressed concerns about the complexity of retail industry awards and the ways they are written.

“Our main payroll lady has been with us for 20 years and even she finds it very difficult to get it right,” Mr Gillespie said. “And I am hearing it from people left, right and centre at the moment.

“In the restaurant business, if someone takes plates away, they are on one level of pay; if they take them to the table, they are on a different level of pay. It is just the nature of the way the awards are written. It is just very complex.”

Three years ago, the Chemist Warehouse retail chain was ­ordered to back-pay more than $3.5m for mandatory online training its workers did in their own time.