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.
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 and there is an argument for the application of lost
interest in some cases.
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.
the business has established the nature and value of the underpayment they should
communicate with the effected employees regarding what caused the underpayment,
the exact nature of the underpayment and the businesses rectification of the
system and the repayment options. It is vital that this communication is
clear and comprehensive. Failure to clearly state all of the elements
that were used to calculate the backpay and all of the pay periods that they
applied to may result in the employee lodging a claim for backpay later that
may have already have been addressed by this process, but due to vague
documentation was contentionus.
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 or a weekly payment of the backpay
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 agreement that was made on
resolution of the underpayment (including exactly the hours/days/weeks
equivalent payment that is being provided, at what rate, and how it is being
disbursed) should also be documented in writing.
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.
the event of an underpayment there are a series of questions that businesses
Q: How far back
should we go?
will need to be rectified from when they occurred
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
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.
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
and can not be done through garnishing wages
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
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.
For more on what is (and is not)
an overpayment see: https://www.fairwork.gov.au/pay/deducting-pay-and-overpayments
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HR Highlights are general information for you to consider and do not constitute
advice on your specific situation