Payroll Operations Impact on Mergers & Acquisitions

How highly does your organisation value the integrity of its payroll operations? If it’s not close to the top of your priority list, you may need to reassess. Following a string of underpayment scandals that tarnished the reputations of several Australian organisations, advisors involved in mergers and acquisitions (M&As) have warned that payroll integrity is now a factor in corporate takeover deals.

Advisors from King & Wood Mallesons, Deloitte and EY told the Sydney Morning Herald that “entrenched underpayment in sections of corporate Australia” had prompted the warning. Today, payroll systems are under more scrutiny than ever before, especially as part of the due diligence process undertaken prior to M&A deals.

Tracy Angwin, Chief Executive Officer of the Australian Payroll Association, said there was good reason for this caution, and suggested thorough payroll audits should be part of the M&A process.

“If there are underpayments you may have a historical liability and the company that you buy might be less valuable,” she said. “I think large organisations need to be doing compliance audits (as opposed to tax audits) every one or two years.”

Andrew Ball, Partner and Employment Law Leader at EY, said that payroll errors occur due to the complicated regulatory environment. “Ascertaining correct employee entitlements, coupled with payroll processes, is a complex and complicated area and we are seeing more cases come to light particularly as more focus is placed on this area by the Fair Work Ombudsman,” he told the SMH.

Deloitte Partner and former Fair Work Ombudsman, Natalie James, added that she’s aware of some organisations that have had to remedy long-standing underpayments shortly after making acquisitions. Just as critically, often a standard payroll audit will not detect a problem due to mistakes becoming embedded in payroll systems for years without detection.

Although technology cannot fix a fundamentally complex environment, it can help streamline and automate processes. A cloud-based, integrated payroll system such as ELMO Payroll, for example, can reduce administrative work – meaning HR and payroll teams spend less time on manual data inputs and outputs and more time on data verification. Just as critically, technology can provide deeper data insights, enabling HR and payroll professionals to spot anomalies and variances sooner.

Similarly, ELMO Rostering / Time & Attendance has a powerful Business Rules Engine and Award Library, to help ensure compliance obligations relating to Modern Awards and Enterprise Agreements are being met.

Despite the best of intentions, mistakes can and will happen – but the financial and reputational fallout of these mistakes can be minimised if they are caught early. With payroll issues and underpayments now jeopardising M&As, it may be time to consider implementing, replacing or upgrading your payroll, rostering and time & attendance software.

Ask ELMO Cloud HR & Payroll how we can help.