hcm and payroll

Ready for 2021: HCM and Payroll

PAYSLIP


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Executive summaryThe challenges of 2020 have not been easy. Without the right systems in place, 2021 could be even more difficult.

A crisis doesn’t just cause new problems, it exacerbates existing ones. Even as the pandemic made it so HR and payroll professionals had to navigate sweeping changes – JobKeeper, stand down orders, etc – the issues of 2019 and 2020 did not disappear. They just had less time to deal with them.

This lack of time is not a minor issue. Small to medium sized businesses in particular often have to call on their HR and payroll staff to be jacks of all trades rather than specialise in one function, so they tend to be particularly time poor.

It might seem daunting, but this dynamic will continue into 2021. New challenges will arise while businesses try to thrive in a recessionary environment – the likes of which Australia hasn’t experienced since 1991.

We write that it “seems” daunting, because the right tools, mindset and people will make these challenges much simpler. Embracing an agile philosophy is the best way employers can prepare themselves for a world of continuing uncertainty.

Today’s payroll technology supports agility. It is very sophisticated and can do a lot more than some might believe is possible. But while technology can be a huge part of transforming into a truly agile company, it can’t do it on its own. You need the right organisational culture, the right experts inside your organisation, and the right technology partner outside of your organisation.

This eBook will look at the workforce and human capital management challenges of today and 2021. It offers a practical guide to what HR and payroll should be looking for when it comes to technology, what technology can do (as well as what it can’t), and how to make the most of the collaboration between HR, payroll and technology.


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Today’s challenges

Compliance issues

Underpayments

Annualised salaries

Collaboration between payroll and technology

Australia is known for having some of the most complicated industrial relations laws in the world. It’s a shifting landscape, where legislation or changes from the Fair Work Commission can mean employers all over the country need to make adjustments.

An example of this that no one was expecting at the beginning of 2020 was JobKeeper. The speed at which the wage subsidy was announced and rolled out meant organisations scrambled. Businesses had to quickly examine the legislation, determine eligibility, communicate with staff and talk to their payroll vendor about adjustments.

Sometimes adjustments aren’t needed as quickly, but they are front-page news and are even more complicated to implement – we are of course talking about systemic underpayments.

The challenge that won’t go away: UnderpaymentsUnderpayments have made headlines for a few years now. They don’t just result in financial damage; they cause negative publicity, a loss of reputation among both former and future workers and a drop in the morale of current employees.

Medium-size companies underpaying all workers under a certain award over time

*visual representation, not accurate data


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That being said, the financial damage is bad enough on its own. Everyone has seen the headlines revealing thousands of staff were underpaid hundreds of millions of dollars.

How do the sums get so large? Processes become a template that gets repeated until a small mistake becomes giant. Below is a simple graph showing what medium-sized companies underpaying all workers under a certain award would look like over time. It assumes a uniform underpayment of a relatively small amount ($500) and disregards potential penalties.

$1,200,00050 workers

100 workers

200 workers

$1,000,000

$800,000

$600,000

$400,000

$200,000

Six months 1 year 2 years 3 years 4 years 5 years

$0


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Just as mismanaged processes and misuse of technology can result in huge costs, properly managed processes and the right use of technology can reduce costs. To explain how, let’s examine one of the most common causes of underpayments.

Annualised salariesAnnualised salary arrangements help both employers and employees by giving them more financial certainty, and in the past have been used to streamline the bureaucracy around payments. They only become a compliance issue when the final wage is lower than the minimum entitlements (minimum wage, penalty rates, etc.) employees would have earned under the relevant award.

This compliance issue was viewed as widespread enough that on 12 February 2020 the Fair Work Commission (FWC) announced rule changes to 18 awards (with another four awards expected to follow). This affects tens of thousands of businesses.

The changes include a strict requirement to pass a better off overall test (BOOT) to make sure annualised salaries don’t disadvantage workers when compared with their award. The changes put a far greater administrative burden on HR and

payroll to keep records and make sure full-time employees under the awards earn their minimum entitlements (see Fair Work website for specifics).

The changes put a far greater administrative burden on HR and payroll to keep records and make sure full-time employees under the awards earn their minimum entitlements. A written arrangement must include (taken from Fair Work):

• the annual wage that will be paid

• which award entitlements are included in the annual wage

• how the annual wage has been calculated, including any assumptions used in the calculation

• the maximum (or ‘outer limit’) number of penalty hours and overtime hours the employee can work in a pay period or roster cycle without extra payment.

On top of this the employer must record each employee’s start and finish time and any unpaid breaks taken. They must also record when employees work overtime or during a penalty rate period. Employees have to sign off on their hours worked at the end of every pay period or roster cycle.

Ideally a business’ HCM technology would come with a powerful BOOT comparison

tool, like Kronos’ solutions do. These are incredibly useful to test an

enterprise agreement (EA) by seeing how it compares to the Award. Such a tool should

allow you to configure both Awards and enterprise agreements in the one system

and extract a ‘payment comparison report’ per employee. This report would show

what each employee actually earned under the EA, what they would have earned under the relevant Award, and let you

know the dollar and KPI variance.

https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/new-rules-for-annualised-wage-arrangements


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These records are crucial because they are used in the reconciliation process that must be undertaken:

• every 12 months after the annual wage arrangement starts; and

• when the arrangement or the employment ends.

This reconciliation is intended to ensure minimum entitlements have been paid, taking into account each employee’s actual hours. If there is a discrepancy, employers are obliged to pay the remainder within two weeks.

So employers need a payroll solution that can do the following:

Accurately track employee hours in a scalable way (including detailed audit reports of swapped shifts, etc.).

Automate award interpretation (and the job classifications within those awards) so penalty and overtime rates and leave accruals are tabulated correctly.

Create two pay calculations for each employee every year: the first to set the annualised wage at the beginning of the working year and the second to determine whether that set amount was reflected by their hours worked.

There are payroll solutions that provide this. Payroll Metrics, which powers Kronos Workforce Ready Payroll, rapidly redesigned its software in light of the FWC decision, fine tuning it so that it would accurately provide the relevant calculations and take a massive and finicky data entry burden off of payroll professionals.

The right technology is not enough though. Collaboration with the technology partner is key.

CollaborationThe truth is that the ultimate responsibility for compliance with the law lies with employers, not their technology. However, a good technology partner understands the complexities and can help employers navigate them.

PAYSLIP


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One advantage a lot of vendors have is broad experience. They work with so many businesses across so many sectors that their institutional knowledge is more broad than any single organisation can hope to have. Kronos, for example, works with more than 500 SMBs in ANZ.

Charles DeWitt, Managing Director of Kronos ANZSEA, explains how collaboration can look.

"Over the years we have done hundreds of implementations and have seen so many ways of interpreting awards. The experience comes in handy when we sit with new customers. When different elements of awards and policies get mashed together, things can be vague, hard to interpret, and complex. If you asked five different lawyers or five different payroll people how to

interpret them, they would each give you a different answer. What we will do is collaborate with the customer and say, ‘Here are some different ways you might interpret that rule. Talk with your legal people and HR experts and decide how you want to interpret the rule. And once you decide, we can configure it for you’.”

So the expertise of HR and payroll professionals remains crucial, but it’s supported by the experience of the technology partner. The former outlines the journey, the latter draws the map, and they walk it together.

It’s a natural fact that individual human errors can and will occur, so a system that relies on Excel sheets and other more manual processes is quite prone to regular mistakes. It’s also very time consuming.

Compare this to what can be accomplished with an HCM technology platform. Once you’ve established the ground rules for payment, a payroll technology automates them in a scalable fashion that comprehensively simplifies rostering (penalty overtime rates will be automatically tabulated) and the reconciliation process. So long as that first step is correct, all the following steps will be too.

This is something Kronos offers across several countries and extends to enterprise agreements as well as awards.

A top-of-the-line technology can also go a step further and make the collaboration really sing with intuitive reporting and analytics capabilities. These include the ability to send actionable insights to managers via interactive reports, and real-time KPIs that help managers, HR and leadership analyse their organisation’s performance against business goals and objectives.


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Tomorrow’s challenges

Engagement

Case study

Top issues for 2021

Payroll technology checklist

Outside of regulatory changes, the continuing challenge for payroll and HR professionals is to view payroll through the lenses of employee experience and analytics, and not just compliance. These two things very much come hand in hand.

Greg McManus, Managing Director of Payroll Metrics, which powers Kronos Workforce Ready Payroll says there are huge benefits to giving detailed information on an employee’s payslip. He offers the following as some of the long- and short-term gains:

• employee confidence that the right team and technology is in place to ensure they are paid correctly and fairly.

• prevention of resentment, as there is visibility into exactly what each payment is and the process for receiving entitlements.

• real-time visibility into mispayments and the ability for employees to alert you to hours that may be incorrect.

• it also helps you if the worst comes to pass and an employee makes a claim. For example, if a casual worker is ruled a permanent employee, you can easily identify their casual loading from their base pay and offset their remuneration. This potentially saves you from a ‘double-dipping’ situation where you pay someone casual loading and the entitlements of full-time work (annual leave, public holidays, etc.).


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More detailed reporting helps in other ways too, explains McManus:

“When you talk to organisations about why they’re changing payroll software, I’d say probably more than 50 per cent say, ‘We’re not satisfied with the reporting we’re getting out’ or ‘We’re not able to analyse our business closely enough’. Usually that relates to the fact that the way the software is built, it doesn’t capture data in a granular enough form. What we do is we do try to break down the component parts of the payroll transactions and costing transactions to their smallest portion.”

“From a legislative point of view, the Fair Work Commission is now asking for information to be broken down into more details so that employees can understand how they’re being paid. Providing that has a secondary benefit of course, as more granular data enables more flexible reporting.”

For both analytics and employee experiences, technology can truly be a great enabler. It provides the necessary data, eases the administrative burden on professionals and can result in cost savings due to the reduction of human error.


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Payroll Metrics, which powers Kronos Workforce Ready Payroll, was implemented in quite a large organisation (2,500 staff). To demonstrate the effectiveness of Payroll Metrics’ solution, a parallel run was run over a Christmas payroll period. This is where the input data going into an organisation’s current payroll system is simultaneously put into Payroll Metrics’ system and then the results are compared.

Looking at the comparison, they discovered a $100,000 discrepancy. The company was confused, thinking it couldn’t possibly have overpaid their workers by that much. It assumed the mistake was on the payroll solution’s end. Surely a miscalculation was made.

Case study: Payroll tech saves $100,000 over Christmas

But, going through the numbers with them, it was outlined how the leave loading was being incorrectly calculated by the company’s existing payroll method. They were overpaying staff on holidays during the most holiday intensive weeks of the calendar.

In other words, the payroll technology paid for itself many times over almost immediately. Not a bad Christmas gift.


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Getting ready for 2021Here’s what’s on the horizon for payroll and what you should be asking of your payroll software vendor.

THE COMING CHANGE WHAT YOU SHOULD DO

JobKeeper 2.0 Talk with your technology partner about the reduced subsidy, the fact that it splits into two levels (one for full-time employees and another for part-time) and collaborate on a smooth transition.

Single Touch Payroll 2.0

Check with your technology partner that they are ready for it and the technology will be compliant in time for the 2021 change.

Underpayments and annualised salaries

This is an issue that isn’t going anywhere, with the The Fair Work Commission (FWC) looking to update the annualised wage arrangements for four more awards:

• Health Services Award

• Hospitality Award

• Marine Towage Award

• Restaurant Award

See above for more information.

Fair Work Ombudsman priorities

The Fair Work Ombudsman (FWO) has outlined what it’s focusing on in this financial year:

• large corporate underpayments

• fast food, restaurants and cafés

• horticulture

• franchise arrangements

• sham contracting

Particularly if you’re in an affected industry, talk to your technology partner about how to double-check that you’re compliant.

https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/new-rules-for-annualised-wage-arrangements

https://www.fairwork.gov.au/about-us/our-purpose/our-priorities


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Payroll technology checklist

Compliance: Do they rigorously stay ahead of the curve when it comes to changing regulations (e.g.: are the calculations of annualised salaries automated)?

Granularity: Some workforce management solutions provide the bare minimum data, which is often convoluted, hard to interpret and not customisable. What today’s organisations need is real-time, actionable data and analytics that break down payroll into bite-size chunks. This will help you stay compliant by having the relevant reports in place, while also providing transparency and visibility to make strategic business decisions. The access to information and autonomy to work their way will see an increase in employee engagement. For example, the technology offers payslips that let employees know exactly where their money is coming from.

Flexibility: To be an agile company, you need to make rapid adjustments, and your payroll has to keep up. The technology should be endlessly customisable and your technology partner innovative when it comes to providing what you need.

Kronos can be that partner. Get in touch with us today:

Phone: 1300 132 742

Website: www.kronos.com.au

Email: [email protected]

Get to know us

Get ready for 2021If there’s one takeaway from this eBook, it’s that payroll technology is key to the agility you will need to succeed in the future. It saves you time, money and gives you the flexibility you need to handle any and every challenge. But it is not your silver bullet. You need the right people both inside the organisation – you, the HR and payroll professionals – and the right partners outside your organisation.

https://www.kronos.com.au/

mailto:contactus%40kronos.com?subject=

https://www.kronos.com.au/about-us/expectedtheunexpected

hcm and payroll

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