Underpay one of your employees and you are likely to be alerted to your error relatively quickly. When we open our paychecks, anomalies like that stick out like sore thumbs. But what happens if you overpay someone? Are employees inclined to notice just as quickly? Are employees likely to bring it to your attention with the same enthusiasm? The answer on both counts is ‘no’.
Employees often miss overpayments and if they do spot them, they are more likely to assume that they have been justly rewarded for their hard work, than their employer has made a mistake.
Either way the net effect of an over payment is exactly the same as that of an underpayment. Trust between employer and employee is eroded and valuable time and resources are taken up trying to sort out the mess.
It happens far more often, and far more easily, than many people believe and the newspapers are rife with high profile examples of payroll failures. Here are just some of the issues that can quickly lead to payroll overpayment errors;
- Fluctuating work schedules for hourly rate workers from one week to the next
- Getting caught in a time crunch or employee shortage and rushing through the payroll
- Software glitches generating overly generous paychecks, particularly when you upgrade current payroll systems or switch to a new one with minimal testing and
- Changing pay schedules and complicated awards.
Most organisation’s, if asked, will swear that they don’t have payroll errors and they will most certainly assert they don’t overpay their people. But if you dig a little deeper you will find there is no measure upon which these assertions are based. There is just an assumption that the payroll is ok.
In our experience, this is often not the case. The most basic preventable controls, such as cross-checking payroll records and periodic audits, are often not in place.
In essence, some employers are treating payroll as a kind of giant honesty box. You’d like to think that your employees would be forthcoming and let you know when you’ve made an error. Don’t count on it. The best way to fix the problem is to head it off before it occurs.