The mechanics of paying your staff may be one of the least interesting aspects to business, however it has quickly become a top priority for boards following a spate of highly damaging headlines about household names underpaying wages in recent years.

The reality is that calculating wages is easy to get wrong. For example, Australia has more than 100 federal wage awards and understanding how an award pay rate applies at any time depends on a number of shifting factors. When a cafe barista works a Sunday morning shift, the rate of pay depends on whether it’s her 20th hour of work that week or her 40th.

Dental surgeries pay overtime or shift penalties at different rates depending if the surgery is publicly or privately owned.

Most cases of underpayment are not intentional, says Tracy Angwin, CEO of the Australian Payroll Association, which conducts payroll audits for companies to ensure they’re paying staff correctly. “Very few employers go out to thieve from their employees. We have never worked with an organisation that has deliberately ripped off their staff,” she says.

Picture: Tracy Angwin, CEO of the Australian Payroll Association.

“Very few employers go out to thieve from their employees. We have never worked with an organisation that has deliberately ripped off their staff.”

Pay awards and legislation also change, and what is correct today could be wrong tomorrow. A ‘set and neglect’ mentality is the real reason for underpaying staff, emphasises Angwin, adding that every CEO blames the payroll software when they fail an audit.

“What it really means is that no-one has looked into payroll because it hasn’t been a squeaky wheel for years or decades,” she says.

“Small errors that no-one notices add up to big numbers over a large population and a long time. But it’s not the software’s fault. If my pivot tables aren’t working in Excel, I can’t call Bill Gates and tell him Excel isn’t working.”

There’s no silver bullet… yet

Within this fraught environment, payroll software helps companies calculate wages according to the way each business interprets the pay awards. Payroll software companies can provide some guidance to setting up the software, but ultimately bear no risk. Australia’s Fair Work regulator says all responsibility for paying staff correctly lies squarely with the employer, regardless of the software they use.

Even when an employer calls Fair Work for advice, the regulator will simply quote the award details and refuse to make a ruling on how it should be interpreted, says Value Adders’ Matt Paff, a consultant in enterprise payroll and HR software.

“I can’t ring Fair Work and get clarification, implement that and get protection. They don’t want to give you the answer in case someone else interprets it the other way,” Paff says.

However, there are signs of change. Award interpretation historically has been handled by rostering and time and attendance software. These applications capture the raw data of hours worked and when, and any conditions (weekend, public holiday) that could affect the award.

Recently, payroll software is expanding into rostering, also known as workforce management, and adding award interpretation themselves.

The Australian Taxation Office is looking to streamline this process further. It is building an application interface that will push centralised award rates to the payroll software companies, Paff says.

“As a former executive of a software company, I’m OK with that. But there should be some protections for the software company if they do put their reputation on the line. And there should be protections for employers if they’ve made reasonable efforts to engage with a software company that has made reasonable efforts to do the right thing.”

Until that changes, however, employers are placing faith in software developers to interpret complex legal structures appropriately.

Angwin is sceptical that software can solve complex awards for businesses. For example, the retail award changes if people start work at one store and finish at another.

“Big retailers can’t agree what the interpretation of that clause is. They engage major law firms to work that out. So how is your payroll software company, who aren’t legal experts, going to get that right? And even if they do, as a customer, is it not dangerous to rely on that interpretation?”

Payroll as part of accounting software

The complexities involved with paying staff properly mean more businesses will need to spend more time thinking about payroll.

For SMEs, payroll options fall into three broad categories. The simplest is the payroll included in small business accounting software such as Xero and MYOB. If a business employs staff who work from 9 to 5 with no overtime then accounting software can handle the basics, says Cassandra Scott, director of Laurus Bookkeeping in Brisbane and a board member of the Australian Bookkeepers Association.

Once you introduce timesheets, this sort of payroll software reveals its limitations. A business that still uses manual timesheets (Excel or paper) needs to spend admin time punching the total hours into the pay run. “Any time you have a conversion of manual data there’s a risk of error,” says Scott. “There’s also questionability around the source of that data. Was that the employee’s timesheet or did someone dodge one up for the employee? There’s no integrity around that data.”

Picture: Cassandra Scott, director of Laurus Bookkeeping in Brisbane and a board member of the Australian Bookkeepers Association.

“Any time you have a conversion of manual data there’s a risk of error.”

Many businesses will use a separate workforce management system such as Deputy or Tanda to capture timesheets electronically, calculate the hours and record them in the accounting software. These systems are also called time and attendance or rostering software.

Workforce management (WFM) tools are very useful for calculating payroll. They can detect when an employee arrives or leaves the business premises and use that information to create a timesheet. Staff can also enter their hours directly into a mobile app that goes to a manager for approval. The WFM software automatically pushes the timesheet data to the payroll software.

These tools also often include wage interpretation engines that automate key award wage calculations and stay up to date with changes in legislation.

Dedicated payroll software

The second category comprises dedicated payroll software that has more options for calculating leave and superannuation entitlements. Increasingly, payroll providers are expanding into workforce management. Payroll software such as KeyPay now has integrated timesheets, award interpretation and a multi-level application process.

It also has more flexibility around physical work locations, which helps businesses calculate labour costs with greater accuracy.

In Australia, the “better off overall test” (known as the BOOT in payroll circles) has accelerated the move from accounting software to dedicated payroll applications, says Scott.

The test requires businesses that employ staff under a registered enterprise agreement to review whether their staff would be better off if they were paid on hourly award rates that include overtime penalties. Fair Work is fining companies that force employees to work very long weeks and yet pay a fixed annual salary where a ‘reasonable’ amount of overtime is expected.

“We are now being a little more rigorous in reviewing a client’s payroll needs who have historically been on Xero payroll to see whether they need to move to KeyPay, particularly if their pay agreements are subject to BOOT,” Scott says.

Even businesses in industries that aren’t subject to the BOOT are still reviewing their payrolls. One client, a Queensland-based exercise physiologist with 20 staff employed under the Health Professionals and Support Services Award – which isn’t tested – has moved to comply.

“The gut feel in the industry is that all agreements will have testing included,” Scott says. “So we’re proactively looking at industries and considering whether Xero is still the best fit or moving the client to something like KeyPay in advance of legislation.”

End-to-end consolidated tools

The third category of payroll software adds workforce management, recruitment/onboarding and human resources. These end-to-end tools represent a relatively recent consolidation. The best-known enterprise example is the Canadian company Ceridian which has acquired a string of companies globally to build out its portfolio.

Start-ups are striving to offer the full package, too. Queensland-based foundU handles payroll, recruitment, rostering and HR, including automatic award interpretation. It says it services 400 companies with strong representation in retail and hospitality.

FoundU works well for businesses with a high turnover of staff and a high number of staff, Scott says. Staff receive shift notifications by SMS and email, and can work across more than one venue within a single pay period.

How to choose the right payroll tool

“People always ask me what’s the best payroll software,” says Angwin. “My answer is always the same: it depends.”

“People always ask me what’s the best payroll software. My answer is always the same: It depends.”

Factors to look out for include whether you’re dealing with a single work location or several, the generation and cultural background of employees, software integrations, the size of the business and the industry.

Tech-savvy millennials will expect a different tool to one for factory workers with English as a second language, says Angwin, who runs a two-hour workshop on how to buy payroll software.

Her advice is to look beyond cool features and the latest software. Make sure it does the simple stuff and is well supported.

“When I’m talking to employers, I say I’d rather have a less featured software and have really good support. If your software goes down and your payroll company isn’t supporting you, it’s a whole new world of ugly.”

Angwin highlights three areas of focus for selecting payroll software:

1. What is the process, starting from the moment your staff arrive at work?

If you’re running an abattoir then your employees’ roughened hands will struggle to clock on with a finger scanner.

2. What type of information do you need to gather?

Some payroll systems are better for certain industries or company size or are flexible for unique features. A company could have a random bonus scheme or a particular way staff are expected to take leave. For example, one company Angwin knows of wanted to allow staff to gift sick leave to each other. But behind the scenes this meant cashing out sick leave for the giver – raising a tax implication – and registering a fringe benefit for the receiver.

3. Do you have trained and certified staff to use the payroll software?

If you don’t have anyone in the office who understands how the system works, it’s like putting an L-plater in a Formula 1 race car.

Check compliance regularly

Once you have chosen your software, review award rules regularly. The best way to pay staff properly is to ensure payroll is compliant on an ongoing basis, which requires expertise. Payroll specialists with the appropriate qualifications can harmonise legislation updates with changes in operations.

Outsourcing to a professional payroll bureau is definitely an option for companies with fewer than 200 employees. However, it is important you’re doing your payroll properly first before outsourcing

What you need to know about popular payroll solutions

The table below outlines some of the key facts users need to know about payroll solutions for SMEs and medium-large enterprises. The options listed here are by no means exhaustive. A product’s inclusion should not be regarded as an endorsement by Chartered Accountants Australia and New Zealand. Information included in this guide has come from the relevant vendors.

Product	Target segment	Service level agreement on support response time	Does product also have workforce management, onboarding/HR, recruitment?
Aussiepay by ReadyTech	Australian small-medium businesses. Those that want their payroll managed so they can focus on their business.	Support response time is four hours.	No
Dayforce by Ceridian	Businesses with 300+ employees. Those looking to combine HR, payroll, workforce management, and talent management into a single application.	Support ranges from within one business hour for urgent matters to within 24 business hours for low-priority matters.	Yes
Definitiv	Medium-large enterprises.	Depends on the issue. Issues preventing the current payrun from being processed are to be responded to within two hours. Complete service level agreements are at www.definitiv.com.au/termsconditions/.	Yes
foundU	Businesses with 20-3000 employees. Australian employers with a need to manage rosters, shifts, industrial awards/EBAs.	Support response time for Level 1 issues is three hours.	Yes
HR3 by ReadyTech	Australian small-medium businesses. Those with more demanding payroll needs that seek the flexibility of modular HR admin and WH&S management.	Support response time is four hours.	Yes
iPayroll Ltd (NZ) CloudPayroll (AU)	All industries.	Within four hours.	No
KeyPay	Accountants, bookkeepers and payroll outsourcing.	Level 2 support for Accounting Partners. Median first-time response time is 10 minutes and median resolve time is 12 minutes.	Yes
Microkeeper	Businesses with 10+ employees. Specialising in fluctuating staff numbers, rotating rosters or multi-site businesses: hospitality, health care, service industries, farming, labour hire services.	Resolution on first call, or within one business day.	Yes
PayHero by FlexiTime	Accountants and companies with 1-1000 employees. Specialising in complex payroll for employers with part time, casual, contract and variable hour staff.	Target support response time for PayHero is within one hour.	Yes
PaySauce	Small-medium businesses.	Same day resolution for A-priority faults, with 80% of calls answered within 30 seconds.	No
Zambion by ReadyTech	Australian and New Zealand medium businesses. Those with more demanding payroll needs that seek an all-in-one solution for the full employee lifecycle.	Response time is based on the priority of support required and starts from one hour. Most responses are within the working day.	Yes

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