Payroll Compliance Series Parts 3 & 4 - Pay Interest and Consult and Communicate

The Fair Work Ombudsmen (FWO) recently outlined eight elements for payroll remediation success. These elements provide organisations with clear guidance as to the FWO's expectations of employers when undertaking payroll remediation programs. In this blog we take a (brief) look at interest calculations on backpayments and how to effectively consult and communicate with all relevant stakeholders.

Interest Calculation Considerations

In most payroll remediation programs interest is payable on back payment calculations. The objective of interest payments is to compensate employees for the loss suffered by being underpaid.

The decisions of Fair Work Ombudsman v Windaroo Medical Surgery Pty Ltd and Others (No 2) and Bryant v Bluewood Industries Pty Ltd (No 2), provides guidance in the application of interest calculations, being that:

1. interest is simple interest (interest amount is not included in the principal amount);

2. interest accrues from the date the amount should have been paid to employees; and

3. the relevant daily rate aligns with the pre-judgment interest rate.

Interest calculations are not always straightforward, so it's important to consult a relevant specialist (tax advisor and/or employment lawyer) as the FWO will likely ask how you have calculated interest on your backpayment calculations.

Also of note is that where backpayment amounts are significant (The FWO does not provide guidance on what they consider a significant amount)

, employers should also pay for impacted employees to seek independent tax and financial advice.

Consultation and Communication

Employers should communicate regularly with employees and, where relevant, consult and communicate with unions. Typically, payroll compliance issues will differ across employee cohorts resulting in different calculations. So, it is important communications are tailored specifically to each employee cohort. Communications should broadly cover:

1. Information about the payroll compliance issues including what underpayments have been identified;

2. The timelines for calculations to be completed and paid to employees;

3. What remediation activities are being implemented to resolve issues and achieve ongoing compliance; and

4. Who employees can contact to ask any questions and request are more detailed review.

With both unions and employees, transparency is key to rebuilding trust! Whilst contacting current employees is relatively straightforward, contacting former employees can be time consuming. Ensure you follow the FWO's guidance on making contact with employees, this includes via last known address, mobile numbers, email addresses, former managers, and even social media. All attempted contact should tracked in a central location and typically managed by either Payroll or a payroll remediation team member.

See below for some practical tips based on our experience supporting large, complex payroll remediation programs.

1. Whilst payroll and workforce management systems seem to take a large amount of blame payroll compliance issues, it is important to review all aspects of your HR operating model (capability, processes, governance, and systems/integration).

2. Tailored employee and manager handbooks, clearly detailing the 'big picture' i.e., employee entitlements (including leave) and the end-to-end payroll process contribute to employee understanding and can significantly reduce queries to Payroll, Helpdesk, and HRBP's.

3. Seek to communicate early and transparently. Own the issues and ensure timelines communicated to employees are met to help build trust.

4. Develop tailored materials for Payroll, Helpdesk, Managers, and HRBP's to ensure they are equipped to answer employee queries. Ensure a subject matter resource (from the remediation program) is available to provide guidance and advice when required.

5. Talk to us - Impact HRT. We have extensive experience managing large payroll remediation programs including preparing all documents and data requested by the FWO, planning your payroll remediation program, managing back payment calculations, remediating processes, strengthening governance, building internal capability, and overseeing integration and systems updates to resolve your payroll compliance issues.

Contact us: info@impacthrt.com.au Visit our website here

The information provided in this article is general in nature and should not be relied upon for any specific or individual scenario. Always seek qualified assistance in navigating employment and labor law.