With the often complicated employment environment it is not uncommon for errors to be made when processing payroll.  While these errors are almost always made without malice or intent, it is important for all businesses to understand what the requirements are, and what the options are, when addressing errors that have resulted in inadvertent underpayment, or indeed, overpayment of staff.

Underpayment

Where there has been an underpayment of a staff member, either through a misclassification resulting in a lower than required base rate, or the incorrect application of loadings or penalties, the employee is entitled to receive the monies they should have in the form of backpay.  When a business identifies that there has been an underpayment they should immediately investigate to determine the extent of the issues and if they may apply to other staff.

Once the business has established the nature and value of the underpayment they should communicate with the employee regarding what caused the underpayment, the exact nature of the underpayment and the businesses rectification.  The employee is entitled to be paid without delay the amount they are entitled to, however, by genuine agreement between the employee and employer the parties can agree to alternative repayment options, including options such as crediting leave balances with the equivalent value.

The communication of the issue of the underpayment, its nature and cause should be made in person if possible as well as documented in writing.  If it is not practical to meet in person at the very least should be documented in writing.

Similarly the communication of the resolution of the underpayment should also be documented in writing.

Once the issue has been identified and the underpayment either paid or agreed resolution documented the business should ensure that the system that allowed the error to happen is reviewed and corrected if necessary.

In the event of an underpayment there are a series of questions that businesses often ask;

Q:  How far back should we go?

A:  Underpayments will need to be rectified from when they occurred

Q:  What about staff who have left?

A:  Staff are entitled to receive payment for the time they worked and this includes staff who have left.  Every effort should be made to locate them to provide the backpay, however if they cannot be found due to address changes etc, the monies should be left in trust with the Fair Work Ombudsman for the employee to claim later

Overpayment

While it is less common, there are still instances of overpayments of staff.  In the event of an overpayment of staff that is due to staff fraud or genuine error a similar process should be followed as with underpayments.  The extent should be identified, systems should be rectified and consultation with staff about the situation should be had and documented.

The central question becomes ‘’can the business get the money back’’, the answer is yes, but in most cases it would be considered problematic or counterproductive.

In the main overpayments are caused by an administrative error by the business, and most overpayments amount to smaller relative amounts.  In this case it would be prudent for the business to communicate that the overpayment has happened, communicate the value of the overpayment over time, and communicate to the employee that the system will be fixed and the overpayment will stop – it is advisable to allow 1-2 weeks notice of the ceasing of overpayment where possible.  Where the overpayment is significant, such as the recent cases of employees who received millions of dollars pay in error, then swift action to have the funds locked and returned should be undertaken – businesses in this situation are advised to seek legal counsel.

Here to Help

ACAPMA members can access resources and can call ACAPMA for advice and support by contacting the employment professionals via employment@acapma.com.au.  HR Highlights are general information for you to consider and do not constitute advice on your specific situation