Why audit now?
What are the consequences when things go wrong?
What is causing wage compliance issues?
How to audit – scope and cost


Managing the operational demands of payroll is challenging, and the complexities of the Australian employment and industrial relations system only add to these difficulties. Taking into account the additional layer of tax and superannuation laws, it is not uncommon for issues to inadvertently and mistakenly arise.

For this reason, wage compliance has always been at the forefront of risk assessment for organisations of all sizes. An audit process is an opportune time to not only rectify any past issues but also take on board feedback that is likely to streamline and improve practices moving forward.

This article provides an overview of the key issues for employers in wage compliance.

Why audit now?

Over the last five years, there have been more changes to the employment and industrial relations system than ever before, including:

  • the 2017 "vulnerable workers" changes to the Fair Work Act;
  • extensive changes to modern awards resulting from an ongoing review by the Fair Work Commission, such as the introduction of new annual salary award provisions to certain modern awards in 2020;
  • progressive increases to the super guarantee rate from 1 July 2021;
  • an increased focus on "ghost" enterprise agreements made under the work choices regime (before the Fair Work Act came into effect); and
  • the 2021 changes to casual employment under the Fair Work Act and introduction of super stapling laws.

This area of law has become one of significant focus in recent years, with the following types of pay claims growing and receiving increased (sometimes high profile) media attention:

  • individual;
  • Fair Work Ombudsman;
  • union; and
  • class action.

Every industry has been impacted, with the cases extending from businesses in hospitality, restaurants and retail to banking and finance.

What are the consequences when things go wrong?

Wage audits allow employers to identify areas of risk and rectify any issues before they escalate. Payroll and wage compliance errors, including those that result in underpayments to employees, can constitute contraventions of the Fair Work Act, including:

  • section 44, in relation to compliance with the National Employment Standards (NES);
  • section 45, in relation to modern award compliance;
  • section 50, in relation to enterprise agreement compliance;
  • section 323, in relation to the statutory requirements for the payment of wages; and
  • sections 535 and 536, in relation to record keeping and payslip obligations.

Under the Fair Work Act, orders for back payment and fines can apply and individual liability can be imposed on those "involved in" any such contraventions. Such fines can multiply tenfold for "repeat offenders" involved in what the Fair Work Act terms serious contraventions.

In addition, Queensland and Victoria have recently introduced laws that criminalise wage theft; other states are expected to follow suit.

In turn, this can all have significant consequences for employers in terms of legal, human resources and reputational risk and exposure.

What is causing wage compliance issues?

Wage compliance issues can arise from a variety of sources, including:

  • the incorrect application of a modern award or enterprise agreement, which is not uncommon, as classification under these instruments is complex. It is not widely known that there are more than 120 modern awards with broad industry and occupational coverage and most employees fall within that scope;
  • the incorrect application of rostering rules, which often results from day-to-day imperatives such as "shift swaps" or changes in employee status (eg, from part time to full time);
  • incorrect assumptions being made about the "wrapping up" of minimum entitlements, such as:
    • overtime;
    • penalty rates;
    • allowances; and
    • loadings into above-award wages;
  • historical practices that have not been updated to reflect changes to the law; for example, contractual hours of work provisions or "voluntary overtime" arrangements that no longer meet the minimum legal requirements; and
  • systems errors, which are not uncommon given the complexity of pay rules under modern awards.

How to audit – scope and cost

Planning ahead is critical to ensure wage compliance output meets the objectives from the outset – no audit project will ever be identical to another. Matters bearing upon the scope and conduct of any such audit will necessarily vary from organisation to organisation, including:

  • budget and time pressure;
  • the size of the employer's business or businesses;
  • the nature and extent of any previous or known non-compliance issues;
  • the complexity and extent of industrial instrument coverage (eg, the number of applicable modern awards/enterprise agreements);
  • changes to the law and/or regulatory considerations; and
  • any recent organisational (structural) changes.

Given the range of factors that are relevant to an audit process, employers should seek legal and other advice prior to commencing an audit project.

For further information on this topic please contact Alina Kaye at The Workplace Employment Lawyers by telephone (+61 2 8999 3300) or email ([email protected]). The Workplace Employment Lawyers website can be accessed at