Opinion: Payroll complexity puts health sector on ATO radar

Large healthcare organisations’ complex payroll practices make them more vulnerable to falling foul of a government crackdown on payroll and superannuation errors.

There has been a significant uptick in superannuation audits in the healthcare sector, driven primarily by the introduction of single touch payroll 2 (STP 2), as well as employee complaints.

The health sector’s generally complex payroll environment means payroll administrators have to deal with several enterprise bargaining agreements (EBAs) and different awards, allowances and rates for shift workers. Not to mention split shifts, callbacks, standby, very different employee types and often very large employee numbers.

Combining this complex pay environment with STP 2, we would expect the ATO audit activity to continue — so it is critical that healthcare organisations have the right processes and controls in place to ensure they comply.

Below are some common pain points for healthcare organisations.

• The complexity of their industrial agreements, given the volume of employees and large number of classifications applicable in the industry.
• Under-resourced payroll teams, who may not be provided sufficient guidance on the legal application of certain pay elements.
• There are a significant number of manual adjustments within the payroll function for the health sector.
• Too often there is a lack of formal approvals around overtime and time capture.
   

Recently the Federal Court of Australia ruled in favour of a class action for junior doctors in respect of unpaid overtime. A key element of this ruling was how overtime was authorised.

The evidence showed that while the employer had not specifically requested these employees to work overtime, it was effectively implied because of the need to commence shifts before the rostered time, as well as the need to work past the rostered time for other duties.

We have seen similar issues for higher duties which are not captured in a roster, particularly where it is on a short-term basis (for example, prior to a formal variation), resulting in employees not being paid sufficiently.

There’s also evidence of organisations making back payments following identification of underpayments.

However, a common pitfall is not appreciating what the back payment relates to — this results in other issues, such as superannuation shortfalls. For example, if an employee is back paid amounts relating to overtime, it is reasonable that superannuation wouldn’t apply. But if an employee was paid back their normal hours, or a particular allowance, it may be the case that superannuation is required.

How to mitigate payroll risks

An essential step in mitigating broader wage compliance risks is to put wage compliance as a management agenda item.

We recommend clients in all sectors, but especially in health care, reflect on the following questions:

• What do we think are our greatest areas of risk in relation to wage compliance?
• What work or reviews have actually been completed?
• What work or reviews have not been completed?
• What level of assurance should we therefore have on our compliance and how does this compare to the level of assurance we require?
• Finally, how do we close the gap between assurance required and assurance we currently have?
   

In undertaking this process with healthcare clients, RSM has identified that a number of organisations had trouble paying their staff the correct entitlements. It’s not just small, less sophisticated businesses who are tripping up — a quick scan of the newspapers over the past few years brings up many examples of some of Australia’s best-known and well-resourced employers making significant errors.

This is an inherent risk when we are operating in a time where it is so much easier for the ATO to detect non-compliance, given better data analytics and real-time pay information.

Super guarantee non-compliance

The Australian National Audit Office ANAO report, Addressing Superannuation Guarantee Non-Compliance, made three recommendations to the ATO:

• To implement a preventative approach to Superannuation Guarantee compliance activity.
• To assess its performance against public accountability standards, introduce assessment targets (including against the super guarantee gap) and explanations for performance results.
• To maximise benefit to employees’ superannuation funds, making more use of their enforcement (and debt recovery) powers, including developing performance measures and prioritisations.
   

The ATO agreed with the first and third recommendations, and agreed, with qualifications, to the second. The ATO also noted it will continue to investigate every complaint received about non-payment of super guarantee.

At the same time, the federal government is proposing an investment of $27 million in 2023–24 for the ATO to improve data capabilities, including data matching both employers and super fund data at scale.

In this environment, ensuring your health organisation reduces its risk by undertaking a detailed wage code configuration review, including STP 2, is a great first step, followed by a transactional review to ensure a high level of assurance.

As a final thought around audits, where an employer finds an error and makes a voluntary disclosure, they are much more likely to receive a lesser financial penalty. Implementing this process also shows employees and other stakeholders that the organisation has proactively investigated whether or not they were paying staff correctly. Beyond investigating, it shows they have addressed the issue.

This is far more likely to gain a positive reception than being pushed into an audit that detects significant underpayments.

*Rick Kimberley is RSM Australia’s national employment tax leader, specialising in taxation compliance and, in particular, wage compliance.
**Jayesh Kapitan is RSM’s national health services leader, national director of the firm’s hospitals practice and a director of the risk advisory division. RSM is a professional services firm with a history of more than 100 years.

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