Why payroll compliance keeps you up at night
You know the feeling. Another regulatory change announced. Another modern award decision that affects your employees. Another reporting deadline approaching. And the nagging question: are we actually compliant?
Managing payroll compliance isn't just challenging – it's getting harder. Tax regulations evolve. Award interpretations change. Reporting requirements expand. Single Touch Payroll adds layers of real-time obligation. And the consequences of getting it wrong are severe.
The Data Doesn't Lie
Recent data from the Australian Payroll Association reveals that 31% of payroll professionals face uncertainty around compliance requirements. A further 33% struggle with interpreting awards and enterprise bargaining agreements. These aren't just statistics – they're warning signs.
When compliance issues go unaddressed, they snowball into serious consequences: steep financial penalties that impact your bottom line, reputational damage that affects your ability to attract talent, legal action that consumes time and resources, and employee dissatisfaction that damages trust and morale.
The pressure you feel is real. You're responsible for getting pay right for every employee, every time – while navigating a constantly shifting regulatory landscape with limited time and resources.
But here's what often gets overlooked: payroll compliance doesn't have to be a burden. With the right understanding, systems, and support, compliance can become a source of competitive advantage – demonstrating your organisation's commitment to doing right by employees and operating with integrity.
The real cost of getting compliance wrong
Before we explore how to get compliance right, let's be clear about what's at stake when you get it wrong.
Financial penalties
The Fair Work Ombudsman and Employment Relations Authority don't take compliance breaches lightly. Penalties for serious contraventions can reach $93,900 per breach for individuals and $469,500 per breach for corporations in Australia. In New Zealand, penalties under the Employment Relations Act can reach $50,000 for individuals and $100,000 for companies.
Remediation costs
Beyond penalties, there's the cost of back-paying underpaid employees – often with interest. Major Australian organisations have paid hundreds of millions in remediation over the past five years. Even smaller breaches can run into hundreds of thousands once you calculate historical underpayments across multiple employees.
Reputational damage
Payroll compliance breaches become public. Media coverage damages your reputation with current employees, potential hires, customers, and investors. The Australian Bureau of Statistics reports that nearly one-third of businesses already struggle to find suitable staff – reputational damage makes this challenge exponentially harder.
Employee trust and morale
When employees discover they've been underpaid, trust evaporates. Productivity suffers. Engagement drops. Your best people start looking elsewhere. The cost of replacing key staff can be 50–200% of their annual salary.
Operational disruption
Compliance investigations and remediation projects consume enormous amounts of management time, HR resources, and payroll capacity – pulling your team away from strategic work that actually grows the business.
Understanding the payroll legal framework
Achieving payroll compliance starts with a thorough understanding of the governing laws that regulate payroll and employment. There are three key pieces of legislation employers must be familiar with across Australia and New Zealand.
In Australia
Fair Work Act 2009
The primary legislation regulating Australia's workplace relations system. It provides a safety net of minimum entitlements, offers flexible working arrangements and fairness at work, and prevents discrimination against employees.
Work Health and Safety Act 2011
Sets out the law governing health and safety in the workplace. It establishes a framework to protect the health, safety, and welfare of workers and the public from hazards present at work.
National Employment Standards (NES)
As part of the Fair Work Act, the NES outlines 11 minimum employment entitlements that must be provided to all employees. These cover maximum weekly hours, flexible working arrangements, and various types of leave (annual, personal, parental, community service, family and domestic violence, etc.).
In New Zealand
Employment Relations Act 2000
The main legislation governing employment relationships in New Zealand. It outlines the rights and obligations of employees and employers, covers collective bargaining and unions, and provides for personal grievance procedures.
Health and Safety at Work Act 2015
Sets out the principles, duties, rights, and responsibilities of business owners and workers in relation to health and safety in the workplace. It aims to protect workers and other persons against harm to their health, safety, and welfare through the elimination or minimisation of risks arising from work.
Holidays Act 2003
Specifies the minimum entitlements to annual holidays, public holidays, sick leave, and bereavement leave. This Act is particularly complex and has been subject to significant remediation across New Zealand organisations.
Record-Keeping Requirements
In both Australia and New Zealand, businesses are mandated by law to keep detailed and accurate payroll records for a seven-year period. This range of records includes:
- Payslips showing all payments and deductions
- Employee agreements and contracts
- Rosters and timesheets
- Leave records and balances
- Superannuation or KiwiSaver contributions
- Tax declarations and withholding records
- Award or enterprise agreement coverage documentation
These records play a vital role during audits and are your primary defence in any compliance investigation.
The five pillars of payroll compliance
Getting compliance right requires a systematic approach. Here are the five pillars that form the foundation of effective payroll compliance.
Accurate Award and Agreement Interpretation
Modern awards and enterprise agreements contain complex provisions that are difficult to interpret and apply correctly. Overtime calculations, penalty rates, allowances, shift loadings, annualised salary arrangements – each has specific rules that must be followed precisely.
What this requires:
- Deep knowledge of relevant awards and agreements
- Regular monitoring of Fair Work Commission decisions and variations
- Documented interpretation processes
- Regular reconciliation to verify correct application
- Specialist expertise for complex scenarios
Common mistakes:
- Misclassifying employees under the wrong award
- Incorrectly calculating overtime or penalty rates
- Failing to pay allowances or loadings
- Not reconciling annualised salary arrangements
- Missing award variations that change entitlements
Correct Payment of Entitlements
Employers must carefully and correctly calculate all payments to ensure employees receive their rightful compensation. This includes base pay, overtime, penalty rates, allowances, leave loading, superannuation, and any other entitlements under the relevant award or agreement.
What this requires:
- Accurate time and attendance records
- Automated calculation engines that apply award rules correctly
- Regular validation of payment calculations
- Prompt payment of entitlements (can't defer or delay)
- Clear documentation of how payments are calculated
Common mistakes:
- Using incorrect base rates or classifications
- Failing to pay higher duties or temporary promotion rates
- Miscalculating leave entitlements or leave loading
- Not paying out entitlements on termination
- Incorrectly calculating superannuation on allowances
Tax and Superannuation Compliance
Australian and New Zealand tax obligations are complex and continuously evolving. Single Touch Payroll (STP) in Australia and employment information reporting in New Zealand require real-time or near-real-time reporting to tax authorities.
What this requires:
- Correct tax file number or IRD number collection and validation
- Accurate PAYG or PAYE withholding calculations
- Timely superannuation or KiwiSaver contributions
- STP or employment information reporting compliance
- Annual payment summaries and reconciliation
- Fringe benefits tax (FBT) assessment and reporting where applicable
Common mistakes:
- Incorrect tax withholding calculations
- Missing or late superannuation contributions
- STP reporting errors or omissions
- Not reporting fringe benefits correctly
- Using outdated tax tables
Comprehensive Record-Keeping
Detailed, accurate records are not optional – they're legally required. And in any compliance investigation or audit, your records are your primary defence.
What this requires:
- Seven-year retention of all payroll records
- Start and finish times for each employee each day
- Break times and unpaid periods
- Employee agreements and classifications
- Award or EBA coverage documentation
- Leave applications, approvals, and balances
- All correspondence related to pay and conditions
Common mistakes:
- Incomplete or missing timesheets
- Not retaining records for the full seven years
- Failing to have employees acknowledge time records
- Missing documentation of agreements or classifications
- Inadequate audit trails for changes
Proactive Monitoring and Risk Management
Compliance isn't a set-and-forget activity. It requires ongoing attention, regular review, and proactive identification of potential issues before they become problems.
What this requires:
- Regular internal audits of pay calculations
- Monitoring of regulatory changes and Fair Work decisions
- Reconciliation processes to identify discrepancies
- Clear escalation processes when issues are identified
- Regular training for payroll staff on compliance requirements
- External compliance reviews by specialists
Common mistakes:
- Assuming everything is fine without verification
- Not monitoring for regulatory changes
- Failing to act when issues are identified
- Inadequate training for payroll staff
- No process for staying current with award variations
The role of technology in compliance
Technology is a powerful enabler of compliance – but only if it's the right technology, properly configured and maintained.
What Modern Payroll Technology Should Deliver
Automated Award Interpretation
Rules engine that automatically applies complex award provisions, penalty rates, overtime calculations, and allowances based on actual hours worked and employee classifications.
Real-time compliance monitoring
Continuous validation of pay calculations against award requirements, flagging discrepancies for review before pay runs are finalised.
Integrated time and attendance
Electronic capture of start times, finish times, and breaks, eliminating manual timesheets and data entry errors while ensuring accurate records.
Regulatory updates
Automatic updates for tax tables, superannuation rates, award variations, and other regulatory changes – ensuring your system is always current.
Comprehensive reporting
Real-time access to compliance reports, exception reports, reconciliation reports, and audit trails that demonstrate compliance.
STP and employment reporting
Built-in compliance with Australian STP and New Zealand employment information requirements, eliminating manual reporting tasks.
The limitations of technology alone
Technology is essential – but it's not sufficient. Even the best payroll system requires:
- Correct initial configuration aligned to your awards and agreements
- Accurate employee data and classifications
- Regular validation that the system is calculating correctly
- Specialist knowledge to interpret complex scenarios
- Ongoing maintenance as regulations change
This is why many organisations combine technology with specialist support.
When to seek specialist support
You don't have to navigate payroll compliance alone. Many organisations benefit from specialist support – whether that's powerful technology for your skilled team, ongoing advisory services, or fully managed payroll operations.
Signs you need specialist support
- Your internal team is uncertain about award interpretation or compliance requirements
- You've identified potential underpayments and need help rectifying them
- Regulatory changes are happening faster than your team can keep up
- You're expanding into new jurisdictions or taking on more complex workforce arrangements
- Your payroll team is spending all their time on compliance instead of strategic work
- You want independent validation that your payroll is compliant
The three levels of support
SaaS
Cloud-based platform with built-in Australian and New Zealand compliance, automated award interpretation, and regulatory updates. You maintain control of payroll operations while the platform handles complex calculations and keeps you current with regulatory changes.
Best when you have a skilled internal payroll team who want powerful tools and compliance confidence.
Supported payroll
Our supported payroll services work alongside your internal team, providing ongoing guidance, access to specialists, and support services while you retain day-to-day control.
Best when you want to strengthen your internal capability while reducing risk.
Fully managed payroll
We handle end-to-end payroll operations including compliance monitoring, pay processing, and employee query management.
Best when you want to remove payroll from your internal workload entirely while maintaining full confidence in compliance.
Frequently asked questions
How often should we conduct payroll compliance audits?
At minimum, annually. Many organisations conduct quarterly spot checks on specific pay types or classifications, with comprehensive annual audits. High-risk areas (complex awards, annualised salaries, casual employees) warrant more frequent review.
What should we do if we discover underpayments?
Act immediately. Calculate the full extent of underpayments, notify affected employees, make back-payments promptly (including interest where applicable), and review your processes to prevent recurrence. Consider engaging specialists for complex remediation.
How do we stay current with award changes?
Subscribe to Fair Work Commission notifications, monitor payroll industry updates, engage with professional bodies like the Australian Payroll Association, or work with a payroll provider who monitors regulatory changes on your behalf.
Can payroll software guarantee compliance?
No system can guarantee compliance – it depends on correct configuration, accurate data, and proper use. However, purpose-built payroll software with Australian and New Zealand award engines significantly reduces compliance risk when properly implemented and maintained.
What's the biggest compliance risk most organisations overlook?
Record-keeping. Many organisations focus on getting calculations right but fail to maintain adequate records proving compliance. In audits and investigations, inadequate records are often treated as evidence of non-compliance.
Enterprise standards standardised
The bottom line
Payroll compliance is challenging – but it's not optional. The regulatory framework is complex, the consequences of non-compliance are severe, and the landscape is constantly evolving.
But here's the opportunity: organisations that master payroll compliance gain a significant competitive advantage. They demonstrate commitment to doing right by employees. They avoid the disruption and cost of remediation. They free up their teams to focus on strategic work rather than firefighting compliance issues.
Getting compliance right requires understanding the legal framework, implementing robust processes across the five pillars, leveraging appropriate technology, and knowing when to seek specialist support.
You don't have to navigate this alone. Whether you need powerful technology for your skilled team, ongoing guidance, or fully managed services, the right partner can help you transform compliance from a burden into a source of confidence and competitive advantage.
Need help with payroll compliance?
Schedule a call with our team to discuss your compliance challenges and explore how Affinity can help you reduce risk and gain confidence.