The scale and financial investment of payroll remediation programs

Rebecca Archer 

Welcome to Beyond the Numbers with Grant Thornton – a podcast delving into marketplace and business trends. 

I’m Rebecca Archer and today I am joined by Partner & National Head of Forensic Consulting Alex Bell and Management Consulting Partner Christopher Wong. Payroll remediation challenges have been a hot topic recently, as businesses of all sizes struggle to navigate the complexities involved. It is critical organisations are aware of the best way to manage these large-scale projects and be agile when issues may arise as companies need to remedy issues as soon as possible while complying with the law.

But how can a business identify when there’s a problem, and what’s the best way to proactively address it before it becomes a bigger issue?

Welcome Alex & Chris!

Alex Bell 

Thanks, great to be here.

Christopher Wong 

Thanks, Rebecca, it is lovely to be here. Thank you.

Rebecca Archer 

So straight off the bat, when you talk about payroll remediation programs and independent reviews, what exactly do you mean?

Christopher Wong

When it comes to payroll remediation programs, we're really talking about a structured program that has been designed to identify, to correct, and ultimately to prevent payroll issues from reoccurring. It tends to happen when an organisation has not paid its employees in accordance with their contractual rights, and it can really occur with employers in any industry of any size as well, and it tends to happen where employers are working in situations where their pay structures are complex, and their workforces sometimes can be quite large.

Alex Bell 

Yes, I think from our point of view, there's definitely a life cycle of these types of projects. You get people who start off, they're not sure they've got an issue to these full recalculations, remediation to employees and ultimately dealing with regulators at the end of the process, and as Chris said, ultimately designed to ensure employees are being properly paid, and, you know, given if there have been underpayments, they need to make sure that regulators are happy.

Rebecca Archer 

And why would you say that remediation for employees is so important? I mean, apart from the very basics, that this is how the people who are working for organisations are earning their livelihoods. But beyond that, what sort of are the metrics that are measured there to assess whether an organisation is doing the right thing from an ethical and moral standpoint?

Alex Bell

Well, I think firstly, yeah, it is a moral problem – it's the right thing to do – to make sure employers have been paid what they're due. Despite what you might read in some of the press, like most of the underpayments I've dealt with, they've not been a deliberate act of underpayment. Really, they're an effective sort of poor reporting business practices, the awards being incredibly complex and a lack of understanding of rostering processes and provisions in awards. 

There's also, of course, a legal entitlement to make sure they're paid, and that's why you'll find employees looking back for about a six-year period to make sure that their current and former employees are properly remediated. There are a couple of other reasons that we find. One is getting regulators happy. Fair work obviously has jurisdiction in this area and getting that process right at the beginning means that there'll be a better outcome with fair work – especially where there are large underpayments, and of course, your employees are central to any organisation, so ensuring that your employees are happy and getting that employee engagement is really critical. You want them to know that they're being treated fairly and that there's a proper process going on.

Rebecca Archer 

Is there also a big risk these days to the reputation of the brand for these organisations?

Christopher Wong 

Absolutely, Rebecca. I think I'd probably add to that that reputationally, a payroll remediation issue can have a very significant impact on any employer. And from a brand perspective, that damage can translate into the demand for an organisation's goods or services. Internally, though, that brand, that internal trust between an employer and an employee can actually be damaged, and that would obviously create a lot of issues with the cultural connection between an employer and an employee. 

So, from that perspective, it is important to actually manage these payroll remediation issues with the utmost care, and Rebecca, you did ask that question before, just around the metric side of things, and I think that it would be probably every employer's aspiration to hit 100 per cent accuracy. I mean, paying an employee what they are entitled to, it's the law, it's within their right, and from a metrics point of view, 100 per cent accuracy would be what employers would be and should be targeting.

Rebecca Archer 

Why would you say there's a growing number of Australian organisations and their payroll teams focused on reviews and any required remediation processes?

Alex Bell 

This area is hugely complex. It's interesting. I have a national role and part of that involves me talking to my colleagues overseas, and it's really interesting talking to colleagues in the UK and the US who are just like, well, how difficult it is to pay your people? Like, it's just not a thing that is an issue in other countries, and really it's the complexity of the awards, and sometimes there's been a lack of focus on certain entitlements from employers, and traditionally payroll is kind of seen as a sort of set and forget process. You've got somebody who's been doing it for ages, and it just carries on, and given everything that's been in the press over the last few years, people and organisations are realising the importance of maintaining and doing this accurately, and it comes down to the Boards. Like, if you're on a Board, the obvious question to be asking your management team is, well, do we have a problem? And that's really driving a lot of the work we're seeing.

Christopher Wong 

Yeah, and I'd say the same for the areas that we support as well, Rebecca. 

I think that as Alex has sort of called out there, there has been quite a large number of very high-profile cases that have had quite a lot of press in this space, and as we talked about before – the brand, the reputational, the internal trust and the damage that can cause is something that no organisation wants to sort of navigate through. 

But beyond that, there is a heightened focus from the Fair Work Ombudsman in the form of, you know, more frequent audits and more frequent investigations, and changes in the Fair Work Act have imposed, you know, more significant penalties on Directors as well, and in that regard, there is that again, increased focus in wanting to make sure that any issues, if they are there, can be addressed as soon as possible and remediated as soon as possible, but hopefully through testing and assurance it can be confirmed that actually there are no issues that need to be managed.

Alex Bell

And I think another aspect is we're getting towards the end of 2024 and in January 25, the criminal liability comes in for intentionally underpaying people. Now, I'm obviously not a lawyer, but I work a lot with lawyers. There's nothing like a criminal liability test to focus the mind, should we say, on doing the right thing.

Rebecca Archer

Do you think that there is an element too with this issue that maybe highlights the fact that there is a lot of complexity around the awards system here in Australia?

Christopher Wong 

Absolutely, and I think, again, just touching on one of the points that Alex made before, I don't think it's – well in most cases – I don’t think it’s ever an employer's intention to get this wrong, but the Industrial Awards landscape of Australia is inherently complex. 

I think there's quite a widespread acknowledgement that that is the case, but there are some industries that probably have it a bit tougher than others, and therefore you would find that some industries probably have a higher number of payroll remediation issues that do arise, and I'm speaking about industries which include retail, they include hospitality, they include healthcare, the social services sector, which has a very complicated award that it needs to operate within; education and manufacturing, a couple of other ones industry wise, where there are complexities that do make the existence of these issues more prevalent than others.

Rebecca Archer 

And given how important this issue is, I'm wondering if you can shed a bit of light on how businesses could be proactive rather than reactive to payroll remediation?

Alex Bell

Sure. So, some of our clients are starting to do annual reviews where we do samples of employees to make sure they kind of stay on top of any issues that might arise, and of course, making sure that they're across any changes to awards or other entitlements. 

I think the other time when we really see people being proactive is when you're making a change in the payroll system, and I'm sure Chris has more experience in dealing with that from an internal organisation perspective, but obviously, when you're making that change, that's when the biggest risk can come in that you set something up incorrectly.

Christopher Wong 

From my perspective, it's always better to be more proactive rather than reactive in these situations. The more testing and assurance that can be done on an ongoing basis, the better. Our experience has been that when issues are picked up and picked up relatively late, it tends to mean that there is a long history of remediation issues that then need to be resolved. 

Obviously, there is a requirement that employers sort of keep payroll records that go back seven years. There is the right of an employee to claim back payment for up to six years. So, the earlier on in the process that you can pick up an issue, the better it'll be because if you leave it for too long and that issue goes on for longer, it just means that a remediation program has to look that much further back into the past, and obviously, the longer you go back, the more complicated, the more timely and the more costly that remediation program is then going to be to run.

Rebecca Archer

And so, from your experience, what would you say is the best time to bring in an external adviser on these sorts of issues?

Alex Bell 

As I said, I think if you're making a change, that's a key point to bring people in. I think at any point where you think you might have an issue or you just want an external sense check, because it's really important that you get more than one sort of view on this kind of work – even from a legal point of view. There are multiple opinions out there on how an award should be interpreted and we've actually received conflicting instructions from different lawyers on the same topic because they hold a different view about how it should operate. So, I think it's really important not to just rely on people who have been there a long time and make sure that you get some kind of fresh perspective.

Christopher Wong 

The other thing I would say, Rebecca, is it always pays to be proactive when there is an organisation that operates in your industry or in your immediate sector that has publicised an issue. If there's something there that has hit the press or a competitor organisation, that is a great time for your own organisation to do some testing and assurance of your own, just to make sure that that same issue hasn't actually crept into your organisation as well.

Rebecca Archer 

Now, payroll remediation programs are, as we're discovering as we speak here, very complex. What's the best way to structure these projects?

Christopher Wong

Well, from my experience, the best way to structure these remediation programs is by using two lenses: the first lens is a forward looking lens, and that is to ensure that once an issue has been picked up, that there is some form of remediation to the process, to the systems, to the methodologies around payroll, to ensure that that issue does not keep happening into the future. So, ensuring that that side of things is taken care of is just as important as the look back. 

So the second lens is around taking that historical view towards rectification and actually going down the pathway of uncovering and discovering where are the issues, how serious and how deep and how widespread are those issues, and then starting to work your way through the process of actually needing to conduct the recalculations, comparing those recalculations to the actual payments that have been made to all your employees that have been affected, and then to actually implement the process of then starting to contact, and often we're talking about employees that may have left the organisation a number of years ago as well. So, you know, their contact details have changed and the process of actually getting hold of people to notify them, to then make those payments to their bank account details, that side of things can actually take quite a long time. 

So, all needs to be taken care of as far as structuring a remediation program is concerned.

Rebecca Archer 

And Chris, how should an internal team be set up for these projects? What are the key elements to consider there?

Christopher Wong 

One thing that I would say for sure is that it's very difficult to manage a payroll remediation as part of BAU – business as usual, as we call it. It may be possible where there is a small remediation issue to resolve, but if we are talking about a larger, more complex remediation issue, where there could be hundreds or thousands of employees that have been infected across multiple jurisdictions for a number of years, those types of remediation programs really require a focused effort from a dedicated team. It's not the sort of thing that you can manage on the side of the desk, as we often say. 

From that perspective, establishing a dedicated team with clear roles and responsibilities, with a regular reporting rhythm back into senior executives to provide ongoing updates around where things are at, you know, how deep or how wide are the issues, how many of those issues have we actually resolved up to a particular point in time? What is the program to actually manage all the way through to the completion of remediation? 

All those things become quite relevant, quite important for the structuring of the program and for the briefing of internal team members to ensure that everybody is on the same page and on the right track.

Alex Bell 

These projects – where they work well – involve a really good dialogue between the legal advisers, who are often external, the internal client team that Chris is talking about, and the people doing the recalculation – like us. And you need to have regular meetings to understand exactly what's going on, and that internal team is really important because they're the ones that can obtain the suitable data that you need to do this project, and they're the ones that can make inquiries with the business about issues that come up, and maybe there were business practices that they can look at, and then at the end of the project, when we've got the results calculations, we'll often provide those to the internal team, and they – from their perspective – will have a better insight into why some of these things are happening, and often they can then talk to the business and actually find that there was a solution that may cover it off. So, we've got a client at the moment where we provided some initial results based on the data that they've given us, and actually that's caused them to look back and found some additional data that's going to save them hundreds of thousands of dollars in underpayments.

Rebecca Archer 

That's incredible. It really shows the value, doesn't it, of that consultation and that working together?

Christopher Wong 

Yeah.

Rebecca Archer

I wonder how businesses can ensure that their programs will actually meet regulatory expectations?

Alex Bell 

So, we get involved in two areas in terms of the regulators. One is where we're doing a calculation of the underpayment itself, and we'll often provide a report to Fair Work on the methodology and what we've done. It's really important that that sets out any assumptions and the pay rules that you've been told to adopt based on the awards, and really, from my experience, you know, they're looking to understand the approach and ensure employees are treated fairly and consistently. 

The other part where we deal with Fair Work is where companies have entered into an enforceable undertaking and we'll provide two independent roles – so we won't have been involved before this. One is an independent assessment, which is essentially looking back on whether the remediation payments were correctly calculated, and another is an independent audit. Normally there's the need for two years, and we'll need to check a sample of employees. In terms of making sure programs meet the expectations – when we're looking at the independent assessments – that's looking back at somebody's calculations, they've already done. So, making sure when a company's doing those calculations that they prepare them in a way that somebody else can look at them in the future, and often they're done in the heat of everything, and at the time everyone understood it, and then you're looking back a year later and it's actually quite hard to understand what was done – so preparing for that. 

And in terms of the audits, I mean, we work very constructively with our clients, even though it's an independent role. So often the EU will say we can't provide our report to Fair Work, and of course we comply with that, but that doesn't mean we can have a, you know, inform the clients of any findings that are going to be in those reports. So, they don't have any surprise when the report comes out.

And in fact, in my dealings with Fair Work, they expect us to have done that because we'll have raised a question and then they'll come back to us and go, well, what did the company have to say about it?

Christopher Wong 

I just want to touch upon one of the points Alex made just around the need to document things, and again, speaking from one of the experiences that we had where it was a very lengthy remediation program; it sort of stretched on for a number of years, highly technical, involved, thousands upon thousands of employees, and one of the things that we were able to support our client with was actually the documentation – we called it a playbook – a playbook that actually captured the framework the methodologies, the way that we approached calculations or approached the treatment of certain employees, the way that we interpreted certain awards and the business rules around that, we actually helped them to draft a very clear and concise document that was then used to support the Fair Work Ombudsman review, and ultimately, the Fair Work Ombudsman actually engaged an independent third party to then review the process that this employer actually went through. 

But this document, which was quite comprehensive, was really instrumental because most of the questions that that independent reviewer would have wanted to ask was already answered through this document. So, having that done early or as you go through the process was very important, because, you know, it demonstrates to fair work that you've gone about the process in the right way and documented things in a way where they could see the due diligence that had gone into that, and it gives them, obviously, comfort that the remediation program was managed in the right way.

Rebecca Archer 

So, when an organisation undertakes this project, can you perhaps give some examples of how things might not go to plan?

Christopher Wong 

Well, I think when it comes to things that haven't gone according to plan, unfortunately that happens more often than I know employers would like, and it tends to happen in situations where the size of the remediation issue is actually bigger than perhaps they expected to begin with, and obviously, when you do a remediation program, there is a very substantial cost of not just running the program, but actually making the remediation payments, which do come with interest penalties on top of it as well. So, issues can arise when the problem is just bigger than was initially expected. 

It can also happen wherever, for example, data quality is not where it needs to be. There have definitely been situations that we've encountered with our clients where they might have had a change in a payroll system over the last seven years, which is the amount of time that they need to retain payroll data for, but through the changing of a payroll system, going back in time, and actually creating a data set that is clean and usable and can be used to then run calculations or recalculations. It's not always that easy.

There might also be team members from the payroll team who have left over that period of time. So, the loss of IP is also an issue that can arise as well.

Alex Bell 

I think, where we've had things that haven't gone to plan…we talked earlier about that communication between the parties involved. If that's not really clear, it can easily go off a bit on a bit of a tangent, because nobody's quite sure what's coming up next; you can't plan for it. The other things that cause an issue will be some kind of change in scope. So often we said it's not clear the exact instructions on all the clauses of the award. In fact, we've had matters where the award itself has changed, and so you don't want to be getting very far down a recalculation until that kind of issue is resolved, because you're just wasting time, and Chris talked about issues with data, and that's something we have a lot. I think being able to demonstrate you've done the best with incomplete data is what's really important. 

In my role, I sometimes get involved in litigation, in payroll matters, and so in that I've had to review other people's remediation reports, and you can see from that where they've had issues with data, and maybe the assumptions at the time were fairly obvious because you've taken a certain approach, but when you look back at it in the cold light of day, maybe there was a better approach or a more consistent approach that you could have taken. 

When you're dealing with historical data, you often find that employers will take what we'd call an employee beneficial approach in grey areas, if there's a bit of a grey area, and one might be to adopt an assumption that everybody was… if some people are underpaid at various points, an assumption might be, well, we don't know what happens, so we'll just apply a general underpayment over that period, which may be the best that they've done, and may overstate the underpayment, which obviously has a cash implication, but when we talked about keeping the regulator happy, keeping the employees happy, there's a clear benefit from that point of view as well.

Rebecca Archer 

Most definitely. We've covered a lot in this discussion, but I wonder, is there one thing that you would like businesses to take away and really hear from what we've been discussing today?

Christopher Wong 

Look, the encouragement that I would give to organisations out there that might be experiencing this type of an issue is actually to engage external advisors sooner rather than later. 

Payroll remediation is not the type of issue that an organisation is doing regularly. It shouldn't be an issue that they're doing regularly because it tends to be more of a one off, and when it is that one off, it's quite a large program – very complex, very technical. So I would say engage with external advisors early because the benefit that you can get from engaging those that have done this before many times in other organisations, hopefully ones that are in your industry, those learnings can actually be brought in early so that you don't need to go through the same challenges that other organisations that have gone ahead of you have actually experienced in the past. 

So, the benefit of knowledge and experience in this space is very, very valuable. So, engage external support early and I'm sure it will be very beneficial.

Alex Bell 

I'd agree with that, Chris. I mean, we have a list of about seven or eight questions that we always use as a trigger question when people ask us for an initial conversation, and that's based on our experience over the last five, six years of doing this type of work. 

I would say, like any risk, it's about trying to be proactive, and your Board will be asking the questions. Or if you're on a Board, you should be asking these questions, and don't wait until one of your employees complains to Fair Work, because that will then start the clock ticking in terms of the remediation and say, you really need to be proactive and on top of this as much as you can.

Rebecca Archer 

Chris and Alex, thank you so much for taking the time to be part of this episode. For those people who are listening, who might want to connect and delve a bit deeper into your work or explore potential ways that you can actually assist them, what's the best way for them to reach out to you both?

Alex Bell

Our details are… certainly, my details are on the website and always available on LinkedIn as well. Very happy to have an initial discussion with anybody or grab a coffee or have a meeting if they think there's an issue that maybe we can help with.

Christopher Wong

Absolutely. Just to echo that, Rebecca, I think reaching out on LinkedIn is always an easy way to do it, as is connecting through our contact details on the website, and, you know, you can be sure that if we don't have the answers to the questions that we get asked, that we can find the right people in the organisation that will have the answers. So, we look forward to hearing from the listeners out there.

Rebecca Archer 

If you liked this podcast and would like to hear more, you can find and subscribe to Grant Thornton Australia on Apple Podcasts or Spotify. Leave us a review or ideas on who you'd like to hear from next. Thank you for listening.