Common payroll pitfalls to avoid
Payroll compliance is a critical part of running any business in Australia. With complex regulations and changing legislation, even well-intentioned organisations can fall foul of the law. These are some of the common triggers employers should watch out for.
System limitations
Outdated or inadequate payroll systems may not accommodate legislative changes or unique award conditions. This can lead to incorrect calculations, missed updates and poor data tracking, increasing compliance risk.
Employment contracts
Employment contracts should reflect current legislation, awards and organisational policies. Outdated contracts can expose businesses when their terms no longer align with legal requirements or award changes.
Misclassifying employees and contractors
Treating an employee as an independent contractor to avoid leave, superannuation or tax obligations can have serious consequences. Having an ABN does not automatically make someone a contractor. Employers should understand the difference and, when unsure, refer to the Fair Work Ombudsman’s Employee or Contractor resources or seek professional advice.
Leave tracking and leave loading
Accurate tracking of annual, sick and long service leave is essential. Manual or outdated records can result in incorrect entitlements, underpayments, disputes and potential legal action. Leave loading is also often overlooked or misapplied. Entitlements and percentages can differ according to the relevant award or enterprise agreement.
Award rates and interpretation
Australia’s award system establishes minimum pay rates and working conditions. Businesses need to monitor changes, correctly classify staff and apply the appropriate award. Misunderstanding clauses covering hours, allowances and overtime can lead to breaches, underpayments and workplace disputes.
Superannuation processing
Common superannuation problems include paying the wrong amount, missing payment deadlines or overlooking eligible employees. With Payday Super introduced on 1 July 2026, businesses should review whether their payroll software and processes can meet the new requirements. If systems fall short, speak with an adviser or payroll provider about upgrading or changing systems.
Single Touch Payroll Phase 2 reporting
STP Phase 2 requires accurate, complete and timely reporting to the ATO, including income type and disaggregated gross amounts. Use compliant cloud-based software, map pay items correctly, review reports before submission and finalise STP at the end of the financial year.
State payroll tax
Payroll tax thresholds and rates vary across Australia and involve considerable legislative complexity. Businesses may breach their obligations by failing to register when required, miscalculating their liability or excluding relevant payments. Regular reviews and up-to-date knowledge of local requirements are essential, as audits may uncover errors from previous years, along with penalties and interest.
Relying on manual processes
Spreadsheets and manual calculations increase the risk of human error, particularly in high-volume environments. Reputable payroll software that is regularly updated for legislative changes can reduce that risk.
Ignoring data security
Payroll systems contain sensitive information, including tax file numbers, bank details and personal records. Businesses should use measures such as multi-factor authentication, encryption and regular system upgrades to reduce the risk of data breaches and protect employee information.
Lack of internal controls and training
Giving one person responsibility for preparing and approving payroll increases the risk of fraud and errors. Segregating duties, providing targeted professional development and considering an outsourced model can strengthen internal controls and improve efficiency.
Review your payroll processes
Meeting payroll obligations requires reliable systems, up-to-date processes and a sound understanding of current laws and awards. If you have concerns about your in-house team or existing systems, outsourcing payroll may help minimise costly errors and support compliance.
To undertake a payroll audit or discuss outsourcing your payroll needs, speak with your Forvis Mazars adviser or one of its payroll experts. Visit Forvis Mazars’ Australian payroll service for more information.
About the Author
Liliana Harris is a Partner at Forvis Mazars in Melbourne, with more than 20 years of experience as a Chartered Accountant and Tax Agent, complemented by a legal background and accreditation as an Estate Planning Adviser. She advises businesses and individuals on taxation, business structures, asset protection, capital gains tax and succession planning, providing clear guidance that helps clients understand their options and make informed decisions at different stages of their business and personal lives.
To contact Liliana Harris, click here.