6 Common Payroll Mistakes & How to Prevent Them From Happening to You

We have seen a lot of underpayment and superannuation scandals in the news recently, with big names such as Woolworths, Super Retail Group, Michael Hill all paying back millions of dollars to employees. They are all examples of how one payroll error could be a million-dollar mistake. Payroll errors can affect a company financially and in terms of reputation, you are known as the company that underpays staff. Don’t let a payroll mistake cost you, these are 6 common mistakes made in payroll. Checking these and using the available tools for businesses, can reduce the risk of payroll errors occurring in your business and paying millions of dollars back in the future.

1. Awards + classifications = Overwhelming

Working out wages and entitlements can be difficult as they are dependant on many factors including age, state, qualifications; which all impact the award under which you pay your employees. Awards can be overwhelming, so ensuring someone is being paid the correct award and classification can be difficult. In Australia you have the Fair Work Ombudsman to have help provide the correct award to use. They also have a pay calculator tool that can help determine the correct pay rate and award. Don’t be another name on the list of underpayment scandals, if you are confused or unsure, take the time to check you are paying the right award.

2. Happy Birthday, your pay has changed!

As mentioned above, knowing the ages of your employees are not only needed so you know what number goes on their cake, but are a factor in which pay rate an employee is paid. Between the ages of 16 – 20 your classified as a junior and your pay will change each year, once you get to 21 years old you are classified an adult and the rate remains the same.  Keeping track of birthdays is important, you don’t want to forget the change in your employee’s pay when their birthday occurs and have to fix it with the backpay in the future. Although this can be difficult to keep on top of and is a manual process, ensuring you have the date of birth in your CRM or Payroll software means you can keep on top of it. Setting reminders in your calendars can also be helpful, as a reminder to go in and change the rate before it’s too late. In ETZ you can run a report on birthdays and each week ensure you can keep on top of changes.

3. Extras: Overtime, Public Holidays, Weekends & Allowances

An issue we see regularly in the news is employers not paying penalty rates and allowances. These differ from each award and have different rulings based on hours worked or daily allowances. Not paying allowances and overtime correctly can be very costly to a company and you can face some hefty fines. MasterChef’s George Calombaris, was fined $200,000 for underpayments of $7.8 million to 515 workers. Penalty rates apply to weekends, overtime and public holidays, having an understanding of the awards you are using and their rulings are important. Awards can include allowances for: tools, travel, meal and first aid, just to name a few. Understanding the awards you are working with can be a timely process but worth it in the long run to ensure no one is underpaid or an allowance is missed, but also to avoid the business paying a hefty fine.

4. Tax File Forms… and the confusion that comes with them

One thing that occurs often is employees not understanding the tax file forms correctly. The tax form selections depend on how much tax the employee pays. Two questions in particular to keep an eye on, “Are you a resident for tax purposes?” and “Do you want to claim the tax-free threshold from this payer?”. These two questions have been the questions most asked and changed questions due to the wording and lack of explanation on the form. It doesn’t hurt to double check the answers employees provide to save you the hassle of fixing it later on. The ATO have a full breakdown of how to fill out the form on their website to help employees when filling out.

5. Deadlines you need to set reminders for

More important reminder to add into your calendar is your payroll deadlines. There are many reports that need to be submitted to the ATO throughout the year.

  • You have the PAYG withholding which is when the business withholds amounts from their employees pay to help your employees meet their end-of-year tax liabilities.
  • Annual payment summaries. Super payments you must make super payments at least four times per year to employees superannuation funds, before the deadlines hit, not doing so could result in fines.
  • If you are a business registered for GST you also need to lodge a business activity statement (BAS) to show a summary the business taxes you have paid or will pay in the future to the government, there are different deadlines depending on your business.
  • Payroll tax, this is a state/territory tax that businesses pay. Not all businesses have to pay payroll tax, but you will when your total wages go past the tax-free threshold for your state/territory . The tax is calculated on the total wages you pay each month and these differ for each state/territory.
  • Annual Income Statement (AIS) but every business needs to complete this with all the financial information of the business.

There are many more reports you need to complete each year and ensuring you are on top of them will reduce the risk of payroll errors and fines.

6. Miscalculation costs you time and money

A very common payroll error comes from miscalculation. Do you know how much time it is costing to fix these errors? Depending on your process you may have a staff member go back through all the records, complete a credit, calculate the correct amount and hours, input these into your payroll system, run another pay run just for one person and issue a new payslip and apology because of one mistake. This time taken to fix the error costs the company money in wages to the employee completing this task and reputation to the client or employee effected. This could result in loss of a client and therefore revenue to the business.

Although payroll errors are costly, we are all only human and humans make mistakes. Keep compliant and learn from your mistakes with payroll. What mistakes have happened to you?


An easy solution to eliminating payroll errors, using ETZ! We automate the payroll process, candidates onboard themselves and we do all the calculations! Book a FREE online demo today and see how we can stop you from making one of these mistakes.