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.
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.
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.
If underpayments are discovered in a business, the following steps should be taken:
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.
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 $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.
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.
“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.”
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