Regis Healthcare (ASX:REG) share price dives 8% on potential $40m underpayment

The company is hoping a quick remedy to its potential breach.

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The Regis Healthcare Ltd (ASX: REG) share price is having a woeful day on the ASX boards today. This comes after the aged care operator released a statement regarding potential employee underpayments.

At the time of writing, Regis shares are being heavily sold off as a result, down 8.10% to $1.93.

Regis flags employee underpayments

In its notice, Regis advised it has identified possible underpayments made to current and former employees under its enterprise agreements. These payments relate specifically to employee entitlements.

The company blamed the miscalculation on inaccurate entries on its payroll system which has affected a number of workers.

To correct the issue, Regis is working with external auditors to commence a review and determine the amount underpaid. It noted that the process requires an extensive analysis of complex enterprise agreements and historical employee entitlement and payroll data.

Based on preliminary estimates, Regis is expecting potential underpayments to be in the range of $30 million to $40 million. This is taking into consideration the past 6 years of both current and past employees.

Regis managing director and CEO, Dr Linda Mellors said:

While we are deeply disappointed this has occurred, our priority is to identify the amounts owed to our people and paying those amounts as soon as our review is complete. We are also upgrading our payroll system and improving internal processes to mitigate the risk of such issues recurring. Our Board is meeting regularly to monitor progress and ensure remediation occurs in a timely manner. I would like to offer my apologies to our people affected by this issue.

The impact to Regis’ profit before income tax for FY21 is forecasted to be between $6 million and $7 million. The remaining amount is set to be recorded as a prior period restatement in accordance with Australian Accounting Standard AASB.

In addition, the company stated that it is upgrading its payroll system and improving internal processes in the meantime. Employee entitlement underpayments are projected to be minimal in the 2022 financial year.

About the Regis share price

Over the last 12 months, Regis shares have gained around 40% for shareholders. However, year-to-date remains relatively flat, up 3%.

On valuation grounds, Regis presides a market capitalisation of roughly $576 million, with approximately 300 million shares on issue.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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