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Ben Thompson is CEO and co-founder of Employment Hero. He is a qualified solicitor of 20 years experience with a passion for business. Ben is a self-confessed tech geek and thrives on creating innovative solutions that combine employment and technology to help Australia’s employers.
In 2018, Ben was announced as a national finalist for The EY Entrepreneur of the Year awards.
As founder and CEO of Australian Payroll Association, which provides payroll advisory as well as payroll training and qualifications, she delivers thought leadership to the industry, employers and partners. Tracy is also the bestselling author of ‘The Payroll Revolution’ (2013) and ‘Profit from Payroll’ (2015).
She is sought out for her commentary and guidance on all payroll topics including why employers get payroll wrong, optimising the payroll function and the future of payroll.
Lielette Calleja is an industry advocate, energetic speaker and a devoted small business cloud accounting evangelist. She is the founder of All That Counts, helping clients with bookkeeping, payroll and management accounting needs.
In 2019 Lielette was the recipient of the Accountant’s Daily Editor’s Choice Award for her dedication to championing professionalism and progress in the Australian accounting industry.
Australian Employment Scandals
Join three industry heavyweights for a round table discussion on the state of small business compliance in Australia.
We’d like to invite you to an exclusive round table discussion with three industry leaders as they explore why Australian employment scandals seem like an everyday occurrence. Just this year we’ve seen Lush, Rockpool, George Columbaris and even massive companies like Qantas and the ABC come under fire.
Are Australian companies simply victims of a complex legal environment or is something more sinister going on?
What You Need to Know.
In this round table discussion with industry leaders, you’ll get insight into:
- The current state of Australian business compliance
- Why employment scandals seem to be increasing
- Signs of malpractice in your own business
- What you can do to help your business stay compliant
Australian Employment Scandals Webinar Transcript
Ben Thompson (Employment Hero) = BT
Tracy Angwin (Australian Payroll Association) = TA
Liellete Calleja (All That Counts) = LC
Why are payroll scandals so frequent?
TA: There’s two parts. There’s a particular answer for franchises and a particular answer for standalone companies, but from Rebel Sport to Swim Lands, there are two main things:
- A “set and neglect” mentality around tech. With any payroll scandal, the first thing to be blamed is the system, but humans set up the system.
- Secondly, none of the payroll scandals we’ve seen had qualified staff with payroll qualifications being involved - it’s not a coincidence.
LC: It's qualification and experience. Payroll has a lot more complexities than raising an invoice, or creating purchases in the system.
- The conception is - this is the rate, pay them to the rate no matter how many hours they work, so their pay doesn’t recognise the award
- Humans being complacent about payroll and not knowing that they lack the skill to do it properly
BT: When I look at the scandals, you have to acknowledge our employment framework (originated in 1907). We’ve evolved over that time, and the employment law system has 122 different awards. There are at least 33 different points at which you could get it wrong - to pay one person, one hour, for one shift, you have to be across all of them. If you use the analogy of driving a car, imagine you’re driving for 6 hours using different types of roads - freeways, highways, residential streets, school zones, no school zones - the speed limit is constantly changing, but there’s no signage at all.
The system itself is flawed. People can’t be paid a cent less than what they’re owed, but the system is flawed and we need to fix it. 72% of the audited businesses last year weren’t compliant
GA: It’s not just the awards, but the acts as well. We added up that there’s almost 100 acts of parliament that we need to consider to pay emps correctly.
What do you think the main problems are for SMEs with payroll?
GA: The minute you employ one person, you have the same rules applying to you as the large corporations like CBA or Rio, but they have the resources to manage it. You don’t get into business to do payroll, it’s just part of what has to be done to run a business.
We do our own payroll (it wouldn’t be good for business if we didn’t) but if I wasn’t, and had less than 100 employees, I would outsource it.
LC: People don’t think twice about getting their taxes done by a professional, but they seem to think that payroll is something they can do - and they want to do - but they’re not doing it properly. We need to change that mindset. Payroll can be more complex than tax if you don’t do it properly - and the repercussions are worse too.
GA: The media focuses on underpayments, but the majority of our audits find overpayments. It’s not just the fear of repercussion [that should motivate you], but are you actually wasting resources and overpaying people?
BT: One of Employment Hero principles is that no one starts a business to be an employer, but the day they become an employer, the weight of the world falls on their shoulders. There’s no universal qualification. The same way you can accidentally have a child, you can accidentally become an employer, and the repercussions can be just as severe.
LC: There’s so much more to payroll - people do a one day course and think it’s done. You could do a one day course on long service leave alone.
Bookkeepers are doing payroll more and more - but like employers, they didn’t go into business to do payroll either. We’re seeing bookkeepers refuse to do payroll. As a bookkeeping firm, we can do <20 and learn the award and get it right, but we wouldn’t want to do bigger. We are ultimately responsible to make sure pay rates are correct. In particular, when you’re dealing with hospitality and retail, it’s a mammoth exercise. We have to take more responsibility. STP has upped the ante for bookkeepers too.
BT: 80% of UK businesses outsource their payroll, whereas it’s probably the opposite in Australia. Maybe the complexity of Australian payroll is that businesses feel they need to try and be on top of it, but it’s so complex, that fewer people are willing to put their hand up and manage it. It’s a very different environment. So why is it different in Australia as opposed to the UK?
GA: I’m seeing two things from bookkeepers. They either don’t want to touch payroll because of the liability issues, or the ones that do, want to be specialists and do it well. If bookkeepers aren’t willing to commit to doing it well, they shouldn’t be doing it.
Another thing that we’re hearing from bookkeepers, is that employers don’t want to be told when they’ve got it wrong. Bookkeepers will correct something but the employers will ignore it. They call all the time and ask ‘what do we do?’ and our advice is to not do it. [not do their payroll any more]
LC: It’s more complex than tax. Because bookkeepers provide a holistic service, it’s just by default we’ve taken on payroll. I’ve been doing it for many years, but the more complex it gets and the more audits from Fair Work, the more we’re second-guessing our knowledge. We need to hone our skills. I think we’ll see more segregation from bookkeepers and payroll in future.
Are we making excuses for SMEs who are ignorant?
GA: Regulators have made it clear - ignorance is not an excuse, but it’s one of those things. We make mistakes as business owners, but the minute you waiver from a hardline, you’re asking people to make judgement calls. A regulator won’t make a judgement call; that’s why it’s a zero-tolerance policy.
We know the difficult things are difficult with payroll, but even the easy things are difficult. Things like record-keeping compliance - so many SMEs don’t even keep records correctly. If you can’t lie in bed knowing your payroll is compliant, you need to get the knowledge internally or have someone else do it externally. (payroll outsourcing, bookkeeper, more training)
Regulators have made it clear they’ll come down hard on you. There was one a few years ago, a brother and sister were running a petrol station who said ‘I didn’t know’. The Fair Work Ombudsman said ‘you’ve got a masters degree, and you’ve been running a business for the last x amount of years - you should have known.’
LC: I respect where the regulators are coming from, but I also think there isn’t enough education around and available to people. It’s just assumed you’ll go out and train yourself. There are so many courses for business owners on marketing or digital or GST, but there’s nothing mainstream geared towards the SME when it comes to payroll. I want to see something more mainstream. They can go to Fair Work, but sometimes Fair Work just confuses people more.
I’ve heard people say that Fair Work does give lots of chances to make good, but when businesses are consistently not making changes, they’re going to come down hard on them and they should. But the ones that make a mistake once, Fair Work should be lenient. They’re trying to keep their head above water and a lot of businesses don’t even know the basics.
BT: I think we need to be sympathetic that our employment law structure is the most complex in the world. People will get it wrong. If 72% of people were driving on the wrong side of the road, you’d notice!
And then there’s the issue of small businesses having to call the Ombudsman for advice, but at the same time, they’re seeing the Ombudsman prosecuting businesses every other day in the paper. It makes them fearful to make that call in the first place.
How can businesses be better?
GA: Unless they find you’ve got another situation going on, like employing people who don’t have work rights or something like that, the Ombudsman will give you an opportunity to make good if you generally didn’t know, but the reality is that sympathy won’t work with Your Honour.
At the end of the day, it is difficult, but lots of things in life are difficult. Don’t bury your head in the sand just because it’s difficult.
Do employers need to be more proactive and how can we get them to do that?
GA: There’s one thing in common when we find payroll mistakes - the shock and horror from the executives. They’re genuinely shocked that they have errors. It’s the non-executive directors that need to wake up. If payroll isn’t on your register, it should be. For me, unless you’re the restaurant taking advantage of international workers who don’t speak English, in general I agree that employers don’t want to have the knowledge. But if that’s the case, they should be outsourcing.
LC: It comes down to showing interest in what you like. If you like marketing, you show an interest and do it well. But a lot of people don’t like payroll, don’t do it well and they don’t show it any interest. When you spoke about mental health earlier, when employees know their payroll is done properly, on time and with payslips, it creates a whole different culture. Giving them access to a portal where they can be self-sufficient, look at their payslips and request leave, it gives them peace of mind. Giving the staff the tools they need to be self-sufficient can change the whole culture of a business.
BT: The reason we started Employment Hero was to help as many employers perform at their best. There’s a whole pyramid of steps that employers can take to be the best performing businesses they can be, but the bedrock of that pyramid is trust. If your employees have the slightest inkling that they’re not being paid correctly, you can’t build on that. They won’t perform or give it their best if they don’t believe they’re being paid right. If you want a business that performs and employees that perform, you need to invest in trust. Compliance is trust, so the ROI on that investment is phenomenal. Cutting corners on payroll is a dumb move.
GA: Another thing you hear is that it’s expensive to outsource, but you know what? So is turnover.
LC: I think it’s the cheapest thing to outsource!
BT: To be completely transparent, I acknowledge that all of us make money from managing payroll, so we have an interest in people doing it. But when you look at the cost, it’s a fraction of the headcount.
GA: I have a client that outsources their payroll. They looked at our report on their business and they saw it was on average $30 a payslip to have outsourced payroll, and they said ‘no way, we’re not spending that.’ But we realised they every time that had a question about payroll, they were on the phone to their employment lawyer. We did the maths and saw that they were already paying $65 a payslip. They now have outsourced payroll.
LC: There are also the opportunity costs to do something that’s not focused on payroll
Is there a way to solve payroll problems for all businesses?
GA: It’s a bit self-serving for me! We don’t do payroll, but everyone needs to be trained. You can outsource or do it in house; I don’t care who does your payroll, but they have to be certified. Only 10% of people who do payroll are certified at the moment. If it’s offshored, the qualifications need to be the same as if it wasn’t.
LC: I’d love to say that there’s a blanket rule, but you have SMEs, and franchises and all these different types of businesses. If I looked at the franchise sector, who come under scrutiny a lot, it needs to come from the top. Franchisors need to conduct their own audits, on their own franchisees. I’m still seeing a lot of franchisees fending for themselves, despite the new act. They either come to us or go to the association. It would be good to see the associations helping franchisees more. There needs to be more information readily available. We won’t see it overnight, but as the years evolve and the complexities around payroll are more standardised nationally, hopefully, there will be more information available.
BT: There’s three things I think could solve it. First, simplify employment. Make it easier to pay people correctly. That means amending the awards to make them easier. I understand there’s a lot of political engagement, but my idea is that businesses can choose to either correctly pay under the award, or a third party, like the Fair Work Ombudsman or something, comes up with a simplified pay rate that is higher than the existing rate, but encompasses all those things like penalty rates and overtime. You can pay one or the other. It would ensure employees are being paid more regardless, but that would need so much political capital to happen and I’m not sure the buy-in is there.
Secondly, there’s technology. We built Employment Hero and Hero Pay to automatically interpret over 45 of the most common modern awards. I’d like the Fair Work Ombudsman to do a better job of telling Australian businesses that the technology exists. You still need a human to oversee it, but automated award interpretation can massively reduce the number of mistakes that businesses make when it comes to payroll.
Finally, every company in Australia needs to lodge their taxes. I think we need to get to a point where there is some form of a compliance certificate you have to lodge yearly - like taxes - to confirm you’ve paid your people correctly. Regulation is my least preferred option, but if that’s what it takes to pay people confidently and correctly, then that’s what it takes.
Employers are paranoid and constricted; they’re fearful to be employers. And because of that, they’re less likely to employ people. If we can get every employer to be more confident in being an employer, they’ll employ more people and our economy will take off.
GA: Right now, I can’t see any of that happening. We need the political will, but we aren’t dealing with just one political system; we’re dealing with 9. Personal and annual leave is regulated by the federal government, but long service leave and other factors are regulated by states and territories. It’s too segmented.
[With STP], we know that all employers are going to have a piece of tech in the next few weeks to run payroll, but it’s not just awards that have to be compliant. Award automation is great, but you have to look at other things too, like what you’re paying super on or why. Award automation doesn’t fix super or long service leave. ‘Do I include bonuses and commissions on long service leave? Or when I'm doing termination?’ It’s all based on so many variables like what state and what type of employment they fall under. You still need humans to manage the tech.
Audience Question: Any specific case studies on payroll scandals you could reference?
GA: I think when you’re in a situation like Lush for example, where they had something like 200k paper timesheets. If you have paper timesheets and leave forms, that’s the number 1 thing you need to change; get rid of them. As for George Columbaris, well it’s like we said; he’s in the business of restaurants. I’ve heard two things being said about that. The first is that it looks like he took a $7.8 million loan and paid 250k in interest. And then there are the other people who say he’s getting picked on because he’s a celebrity chef.
It’s somewhere in the middle, but he’s in business to run a restaurant. He’s better at a souffle than calculating tax on a termination payout.
Audience question: If my outsourced payroll makes a mistake, am I still responsible?
GA: Yes. You can outsource the labour, but not your responsibility. If I were going to outsource my payroll, I’d want to know who is doing it. Demonstrate you care about what happens when it goes wrong, and how you can fix it if it does? Show that you care about the responsibility, as well as the labour.
LC: There are of course contractual liabilities; it’s a joint responsibility. We do have liability on that. We are very selective about who we do payroll for. Driving digital tech is fantastic, but driving the processes is important too. Even if we’re not doing the payroll and are working with an outsourced provider, we need it to be accurate. I’ve seen big payroll names get it wrong.
Audience Question: What are the current fines for a payroll manager?
LC: I’ve seen people get it wrong with $40k fines from Fair Work.
GA: Last year the fines were increased by 10 fold. It’s over $600k fine for contravention. But that’s intentional; it just gives the regulator the ability to fine whatever they want.
BT: So by ‘each contravention’ it means that if you have 100 employees and you made 2 mistakes with your payroll that affected each employee, there are 200 contraventions.
GA: And because these fines can bankrupt companies, they can also enforce punitive clauses, like saying directors can never act as a director again. Any enforceable undertaking can have quite punitive clauses, i.e. a banner on their Facebook and Twitter apologising or half a page in the SMH. So there’s brand damage as well as fines.
Audience Question: If we do outsource, do you get advice and services as well as the labour?
GA: Some will, some won’t. If you want advice as well as labour, then have that conversation up front.
LC: We will not advise on HR. We will provide advice on award interpretation. We’ll suggest they engage with an HR provider, or outsource their HR completely.
BT: We have everything under one roof - EI Legal for employment law, Employment Innovations for outsourced payroll and HR, and of course Employment Hero which provides the tools for HR, payroll and employee engagement. Often you need to go straight to a lawyer, and even then it’s not one straight answer.
Just this week, the High Court handed down a decision about personal and carer’s leave, and parliament was looking at another one about double-dipping in casual loading. You can’t just pick up the rules and look - it’s always changing.
GA: With that High Court Decision, nothing’s changed with personal and carer’s leave - it’s just reinforced what the law already was.We’ve grown up thinking you get two weeks, but the Fair Work act changed it to 10 days. But if I work 1 day a week, does that mean I get 10 weeks off? The law doesn’t pass the pub test.
LC: Carer’s leave is pro-rata.
GA: No one actually speaks to anyone in payroll before they think about regulations. Some of the employee benefit agreements (EBAs) are the same. We have one client who had a great idea, that you can gift your sick leave to colleagues. But how does that work? Who pays the tax? In theory it’s great, but in practice it wouldn’t work.
Audience Question: If I outsource payroll, I’m acknowledging I don’t have the skillset; who am I to question the payroll provider? Why shouldn’t they be liable for non-compliance?
GA: We’re the wrong people to ask! Call Sandra Parker at Fair Work.
LC: This is where business owners need to do their due diligence and be sure they are outsourcing to registered payroll provider. If something does comes up, you can be assured they have the appropriate insurance.
BT: In summary, what’s the best piece of advice you can give to businesses wanting to avoid their own payroll scandal?
GA: Three things.
- Technology is key. Find technology that is fit for purpose that fits your business.
- Make sure the person who does your payroll is qualified.
- Make sure the processes they use aren’t flawed. If they’re flawed, it doesn’t matter who if you have the best payroll people and technology.
LC: Simplify your processes. Get digital, remove paper, put timesheets online. When you go digital, use the opportunity to get your employees to go digital too. If your business is timesheet driven, take the opportunity to go digital. Don’t use [payroll technology] just from a compliance point of view; use it to grow and scale your business. If you can simplify and streamline your processes, you can focus on other areas of your business. And outsource your payroll! It’s not what you went into business for.
BT: We always say that people are the foundation of businesses; if you can get them to perform at the top of their game, the results are outstanding. But the foundation for that is trust and trust comes from compliance, so invest in compliance. I don’t believe you can make a better investment than being compliant or building off a bedrock of trust - and technology is a great way to do that.