Every week, organisations get into trouble over payroll errors caused by reliance on a manual system.
In January, US restaurant chain Gordo Taqueria was forced to settle after staff claimed that they weren’t paid correctly for overtime, and that tips weren’t fairly distributed. It turned out that the company hadn’t been keeping accurate payroll records, had no time clock and had been relying on manual record keeping.
A couple of weeks later, the city of Dallas admitted that firefighters weren’t being correctly paid thanks to a creaking legacy system that meant many payroll processes were being handled manually. The city council has now approved funding to invest in a new payroll and human resources system.
But the highest-profile example of recent months is probably that of Lush. Last summer, the cosmetics firm admitted that it had underpaid more than 5,000 employees over an eight-year period and owed them as much as $2 million as a result.
The underpayments started in 2010 with the introduction of Australia’s modern awards system. As the company grew, so did the variety of shifts, patterns of work, different awards and classifications – and the company’s manual payroll system was finally unable to cope.
“Knowing what we know now, it was irresponsible to imagine such an outdated system would work for a company our size,” the company said in a statement to staff.
“We’ve invested $1.5 million for external payroll experts to build a system onto which 200,000 of your old handwritten timesheets will be scanned, indexed and entered so that the last eight years of payroll can be re-run accurately.”
As Lush admits, it’s highly unusual for a company of that size to be reliant on manual payroll systems. However, many smaller organisations still are. In the UK, for example, a survey from payments automation firm Modulr revealed last year that while 84 percent of companies used either off-the-shelf or in-house payroll software, 37 per cent said they also still used Excel spreadsheets to manage payroll processes.
And failure to keep pace with new legislation isn’t the only risk with relying on manual payroll processing. One of the most obvious is human error – the more often data has to be entered by hand, the more likely a mistake is to be made.
Meanwhile, manual systems are more time-consuming, harder to keep up-to-date and more vulnerable to hackers or computer failure.
Lush moved quickly to introduce new automated payroll systems once the underpayment was discovered, and has been praised by the National Retail Association – which conducted a review of the firm’s processes – for its quick response.
“While the compliance issues are clearly regrettable, LUSH’s response has been a textbook example of how a business should recognise its mistakes, take ownership of them and fix them,” comments CEO Dominique Lamb. “We are calling on all businesses around Australia to perform a thorough check of your own payroll systems to make sure you are meeting your responsibilities.”
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About the author
Emma Woollacott is a freelance journalist specialising in business and technology. She writes regularly for the BBC, Forbes, Raconteur and other publications.