Mining giant BHP recently admitted to underpaying 29,000 of its Australian workers for leave and other entitlements over a 13-year period, to the tune of $430million (US$280M) before tax.
At first glance, this seems like a massive amount of money, and raises concerns about how employees are treated. While not condoning BHP's mistakes, there is more to this issue than the media's sensational headlines have suggested.
BHP’s $280 Million-Dollar Mistake
To put it in perspective, BHP's 2022 revenue was $65 billion. The $280 million underpayment is less than 0.5% of that; significant, but not huge relative to the miner’s overall operations.
Understanding the scale and perspective
It’s unlikely that anyone at BHP was sacked as a result of this underpayment. In many large organisations, subtle errors in HR or legal changes occur without any bad intent or malice. When these errors are extended over many employees and several months or years, they can accumulate into a significant figure.
Immediate action steps for businesses
If underpayments are discovered in a business, the following steps should be taken:
- Disclose the issue immediately: Transparency is key to resolving the problem through the appropriate channels.
- Consult the right experts: Speak to a professional to understand the full extent of the issue and how to address it.
- Communicate effectively: Develop a plan to inform the relevant parties, whether employees or management, to resolve the matter promptly.
Practical realities of business operations
Many businesses inadvertently underpay their employees. Often, this is not due to intentional wrongdoing but rather administrative oversights, such as issues with payment portals. Superannuation is a common area where underpayments can occur.
While not condoning these errors, it is important to recognise that such issues can happen throughout the life of a business. The key is to identify and rectify these errors promptly.
The role of payroll compliance and virtual CFO services
Ensuring payroll compliance is crucial to avoid discrepancies and underpayments. A good CFO or virtual CFO can provide the oversight and expertise needed to maintain compliance. They can implement robust payroll audit processes to catch discrepancies early and address them before they become significant problems.
The real impact and media sensation
The $280 million underpayment by BHP is substantial. However, relative to the size of their operations, it is understandable that such issues can arise. This makes for a sensational headline, capturing public interest. For shareholders, this might not be a major concern. Instead, it could present an opportunity if the share price dips temporarily.
Key takeaways for business owners
- Stay on top of HR and legal requirements: Regularly review payment practices to ensure compliance and prevent small errors from compounding into significant issues.
- Implement robust auditing processes: Regular audits can help catch discrepancies early and address them before they become major problems.
- Maintain open communication: Keeping lines of communication open with employees and management can help resolve issues swiftly and maintain trust.
- Utilise virtual CFO services: A virtual CFO can provide the expertise and oversight necessary to prevent payroll discrepancies due to administrative errors and overlooked small errors leading to significant problems.
The $280 million underpayment by BHP serves as a reminder for all business owners to be vigilant about HR and payment practices. Ensuring accuracy and compliance in these areas is crucial to maintaining a trustworthy and efficient operation. Employing the services of a virtual CFO can greatly enhance a business's ability to manage these challenges effectively.
“BHP's $280m mistake: What to do if it happens in your business”
.png?width=434&height=219&name=From%20the%20Founder%20(BM).png)
“You may have seen in the news recently that BHP have come out and said that they’ve underpaid their employee entitlements by about $280 million. On the face of it, you go: “Oh my goodness, that is a massive amount of money. That is so terrible. How can they treat their employees like that?”
I’m not condoning what they’ve done, but to put it in perspective, in 2022 BHP’s revenue was $65 billion. $280 million compared to $65 billion is just under half of 1% of their revenue. So I’m not saying that $280 million is small, but at the same time, relative to what they do, it isn’t a huge difference.
There’s a few perspectives at play. Do you think anyone at BHP got sacked as a result of this? I really don’t. And that’s because, in a lot of places we work at, subtle things happen regarding HR, legal changes, where there’s actually no bad intent, there’s no malice. But when you extrapolate it out over five, 10 employees, and when you’ve been doing it for a few months, or maybe even a couple of years, it can build into quite a standalone figure that you owe.
So what do you do if this happens in your business?
The first thing I would suggest is disclose it immediately and get it resolved through the appropriate channels. If you need to speak to an HR person, speak to that person. If you need to speak to your accountant, speak to your accountant. But put a plan in place to communicate with the relevant people, whether that’s the employees or the management of your business to get this matter resolved.
I can think of numerous times where businesses we’ve worked with, when we start there, we’ve identified underpayments that have occurred through really no fault of their own. It’s through the administration of how payment portals work or whatever reason, and it ends up being that people get underpaid certain amounts, particularly with super.
Am I condoning it? Of course not. But practically things are going to happen through the life of your business.
So the $280 million that has been underpaid – yes, it’s an eye-watering amount of money. But also relative to their size of their operations, it is understandable that things like this do occur. But it’s an awesome headline, it’s a sexy headline. It’s going to capture people’s interest. If I wanted to own shares in BHP or if I owned shares in BHP, it’d be something I wouldn’t be worried about. If anything, I would hope that somehow the market would take this news and go, “Oh, the share price should go down...”
As I said a moment ago, statistically, it’s an insignificant amount of money.
What’s the takeaway from this? Make sure you keep on top of all your HR and legal requirements, in terms of when you pay and how you pay your employees, to make sure there isn’t something that’s hiding out there that eventually one day you’re going to have to pay, and what seemed like a small amount for a small error compounds into a bigger amount overall.”
Learn everything we teach our clients free
Join 400+ business owners & leaders who receive practical business & accounting tips, delivered free to your inbox every week. No fluff, just high-level expertise. Sign up now.
