Payroll management is a tough job, and one that many Australian small business owners don’t have the time to do properly. However, many also don’t have a skilled accountant or HR professional on staff to ensure that everything is properly handled. As a result, businesses very commonly make mistakes that result in their employees being underpaid.
Throughout the year, the Fair Work Ombudsman has conducted hundreds of unannounced audits on Australian businesses, finding that 72 percent of businesses had breached workplace laws. Not only does this suggest that most Australian SME employees aren’t being fairly paid, it also represents potentially serious financial difficulties for businesses. Businesses who are found to have underpaid employees not only need to come up with the funds to make up for any missed pay, they also face significant penalties that can amount to as much as $100,000.
In order to ensure that their plans for growth as well as their regular operations aren’t disrupted, it’s critical that business owners find ways to avoid this issue. That means being proactive about any potential payroll issues, and any potential cash flow interruptions that might result.
Business owners need professional support
There are many reasons that businesses don’t get payroll right, but the issue primarily boils down to the fact that business owners aren’t able to manage complex and ever-changing payroll requirements. The most commonly cited issues were incorrect interpretations of industry awards and staff level qualifications, and poor management and oversight of payroll systems. Moreover, employers in some sectors need to track specifically what times employees work, applying different pay rates as appropriate. Many businesses simply can’t keep up.
With directors being personally liable for underpayments, and franchisors being held accountable for their entire franchise networks, this means that stakes are high not only for businesses, but also for business owners personally. As a result, business owners are increasingly turning to professionals for support. By hiring experts to conduct an in-depth overview of their payroll systems and policies, businesses can get an idea of how well they’re meeting their obligations before the FWO comes knocking. While this may also mean making previously unanticipated payments, these businesses won’t face costly penalties, and can take the time to determine how to come up with the necessary funds without interrupting growth plans or their regular operations.
Making up the difference
Since most audited businesses have been found to be in breach of workplace laws, it’s likely that most businesses conducting internal audits will also find that they owe their employees money. To cover these costs effectively, these businesses need fast access to financing solutions that will help them maintain their working capital while protecting their ongoing operations.
Instead of taking out a loan, or spending funds that are needed elsewhere, businesses can opt to trade in an invoice to their financial institution in exchange for most of its value up front. Effectively, this allows a business to give itself an advance on its future income. Unlike a loan, invoice financing doesn’t require any credit checks or security. Instead, the financial institution collects the outstanding debt from the client, before paying out the remaining funds, less their predetermined fee.
Supply chain finance
Of course, not all businesses issue significant invoices that can be easily financed. For example, retail businesses typically collect payments at the point of sale. Instead of financing an invoice, these kinds of businesses can opt to use supply chain finance. Rather than providing fresh working capital, it allows businesses to finance supplier payments through a third party credit fund. This means that suppliers are paid out of this fund, rather than directly out of the business’ pocket. The payments on the resulting balance can then be deferred, so that payments are made a few weeks or months later, when more cash is available.
In the meantime, the business can apply the working capital it avoided spending on supplier payments on other pressing matters, such as newly discovered wage underpayments. Financing tools like supply chain finance, invoice financing, and others make it possible for businesses to manage unexpected costs like these without compromising their efficacy, or sacrificing future growth. By understanding how these work, and applying them well, business owners can avoid potential scrutiny and penalties, while ensuring that their employees are paid fairly.