Many businesses get pay wrong without being aware of it. But pay or payroll errors are a major financial and legal risk, so you need to know where you could be going wrong and ways to stay compliant. This article covers the most common pay mistakes.

Mishandling pay can also harm employees’ trust and confidence in the business, which can end up sapping morale and damaging your reputation.Unfortunately, pay errors aren’t rare. A 2018 study estimated 2.4 million Australian employees could be affected by payroll underpayments, at a cost of $3.6 billion.

The combination of good payroll and HR systems will help reduce mistakes and non-compliance, and will make it quicker to identify and resolve any issues.

Here are some common pay errors to watch out for:

• Underpayment – It isn’t always easy to ensure employees receive all their entitlements, as payments for base salary, overtime, penalties, allowances, and superannuation can be complex and confusing. Employers can make incorrect deductions without knowing it, so don’t just accept that your payroll system is automatically accurate and payments meet current legislation and awards. Take time to review what payments are being included and excluded, and make sure the amounts are right.
• Overpayment – Overpaying your workers can be just as costly and harmful to your business as underpaying. Nearly 70% of audits by the Australian Payroll Association in 2020 revealed overpayments, and some errors cost employers millions of dollars. Overpayments are also hard on employees who are unaware and not in a position to repay the money. In certain circumstances, the business might not be able to recover the money and the employee (or ex-employee) keeps it.
• Minimum wage compliance – The national minimum wage is the lowest that a worker can be paid. You and your employees can agree to any wage rate above the minimum, but every employee must be paid at least the minimum for every hour they work. Making a serious failure to pay the minimum wage could lead to significant penalties. The Fair Work Commission reviews the minimum wage each year, so you need to make sure you’re up-to-date with the latest rates.
• Unlawful deductions – Legally, you can’t deduct money from your employee’s wages unless it’s for a lawful purpose, is reasonable, and the employee has agreed to the deduction in writing.The law makes no distinction between not knowing what deductions are legal and deliberately breaching the Fair Work Act, so employers need to ensure any deduction is lawful and has been discussed with the person. If you are unsure, get legal advice before proceeding.