Are payroll providers responsible when things go wrong?

Posted on 17 December 2018 by IRIS FMP

Employers and payroll providers are awaiting judgement on a landmark case that could see payroll providers liable for employer errors

Sharmalee Goonewardene, who was an employee of a travel company in California, sued her employers due to errors in her time sheets amounting to over $6,000. She accused them of discrimination, missed overtime, missed breaks and wrongful termination, amongst other things. It may sound like a clear-cut case, however…Goonewardene added her employer’s outsourced payroll processor, ADP, as a defendant. Her claim was that by paying her inaccurately, ADP “committed unfair business practices”.

Despite not being her employers, a state appeals court ruled that ADP breached a “duty of care owed to [the] appellant”, by underpaying her.

This controversial accusation could impact on the other payroll and HR service providers in California, of which there are over 1,000, the rest of the US if the case is proven, and internationally as disgruntled employees find out and potentially take action.

It means that, should Goonewardene’s case set a precedent, payroll providers could be liable for the errors that employers make in the inputting of their employees’ data before they go on to process it.

We have to wait a few more months until a final ruling is decided, but in the meantime, there are some things that employers can do to decrease the risk of errors.

  1. Go with a payroll provider where you’re not just a number. Employers using faceless larger corporations are often lost amongst all the hundreds of other employers . This lack of focus can mean mistakes are much more likely and means it can take a lot longer to spot them. It’s a downside to enormous corporations. When things go well it’s great…but there’s also more scope for something to go wrong.
  2. Choose a payroll provider that cares. It’s important that you find a payroll provider that gives you a named payroll manager who you can build a relationship with and who will get to know you as well as you know yourself. They’ll be on the look out for any discrepancies or anomalies, same as you.
  3. Triple-check your data. Payroll data is particularly important. Finding a provider that has all the necessary accreditations and system audits will limit the number of payroll errors you have. In going with a competent provider payroll teams often free up very valuable time that can be used to properly assist employees with queries. Most under pressure payroll teams often find themselves in a catch 22 of multiple payroll errors and multiple enquiries from employees. The enquiries take up too much time each month, meaning the next payroll is rushed, often then leading to more mistakes.
  4. Look after your employees. Research shows# that employees in America will only tolerate 2 payroll mistakes before they consider leaving and looking for a new job. In the UK, research revealed that having to chase a payroll query would demotivate 44% of employees, and “51% would lose trust in their employer.”
  5. Set deadlines with managers regarding the data that is sent to you each month. Deadline slippage is a major cause of payroll errors.

Employers and payroll providers (including us!) will be watching with interest in March 2019 to see what the court rules – will the responsibility on the payroll provider end with the information they are given? Or will they be subject to third party liability in ensuring the information they’re given is correct? Payroll people aren’t mind- readers, so we can’t see how this complaint can be upheld. Nevertheless, steps can be taken immediately to limit the mistakes within your payroll if you put your mind to it .

We’ll report back once the verdict is announced.