The start of a new financial year usually brings with it, payroll changes. This year, we were hit with several changes at once.
Minimum wages increased. PAYG withholding settings changed. Payday Super commenced. For many organisations, this meant updating pay rates, tax tables, super settings and payroll compliance processes across multiple employment environments.
While most organisations have responded to these changes, implementation alone does not guarantee compliance. Changes to payroll settings must be supported by robust assurance testing to confirm they produce the intended pay outcomes and do not introduce new risks.
| Payroll Changes Rarely Affect One Line
A simple hourly rate change rarely stops there. It can flow through to:
- Overtime
- Penalties
- Casual loadings
- Leave loading
- Allowances
- Superannuation
This is where the domino effect can begin. The hourly entitlement may be correct, while a penalty or allowance remains linked to an old rate. An enterprise agreement may include a rate increase but still fall below the relevant award entitlement. An employee classification change may be applied from the wrong effective date. These errors may not be obvious: payroll will still process, and employees will still be paid. The amounts may even be close to correct, but still not compliant.
| Common Issues Identified in Payroll Reviews
Payroll concerns are not caused by one large system mishap. It is commonly caused from smaller settings, workarounds or inconsistencies that have built up over time.
Some examples include:
- leave hours being treated incorrectly when calculating overtime thresholds
- allowances being applied to leave or overtime instead of ordinary hours worked
- annual leave loading being calculated using the wrong rate or entitlement cap
- employees being mapped to the wrong classification or minimum rate
- annual salaries not sufficiently covering overtime, penalties, allowances or loadings
- payroll corrections fixing past payments without correcting the underlying issue
Each of these issues may look minor on its own, but across a wide employee base and multiple pay runs, a shortfall can accumulate to a larger problem. These risks expand when an organisation maintains several awards, enterprise agreements, payroll systems or operate across a wide range of locations.
| Payroll Compliance is a Team Sport
Payroll teams are often under significant time pressure; their immediate focus is to always ensure employees are paid accurately and on schedule. This is essential for an organisation to continue successful operations. However, a completed pay run, or even a parallel monitoring system, does not always prove that each employee has been paid the correct or accurate entitlements.
Both systems rely on correct updates to changes in legal entitlements and employee roles. This is the reason why periodic payroll reviews performed by a close group of specialists are important in assessing full compliance. Payroll compliance sits at the intersection of legal, operations and data. IR specialists help interpret the changes, payroll understand how those rules are applied in practice and data specialists independently verify outcomes across large volumes. Organisations that rely on only one of these disciplines often struggle to identify and resolve compliance issues.
Target reviews may include:
- identifying the employees affected by the change
- interpreting the changes in the context of the employee’s position
- confirming the correct award, agreement or contractual requirement
- independently re-calculating the expected employee entitlements end to end
- comparing the expected result with sample payroll transactions
- determining whether any findings are isolated or affect a wider group
The aim is not to verify every payslip individually, but to target testing towards the most material risk areas and gain reasonable assurance that payroll changes have been implemented correctly and are producing compliant payroll outcomes.
| Remediation Should Address the Underlying Cause
We have worked with several organisations that have spent recent years reviewing possible historic underpayments to their employees. This work has included identifying impacted employees, reconstructing entitlements, calculating shortfalls and processing back payments.
These steps are essential to rectify the underpayments. However, a remediation project is incomplete if the root cause remains within the payroll system. The historical shortfall may be rectified while the same incorrect setting continues into the next pay run.
This can occur where:
- the payroll systems’ configuration is not changed
- the industrial interpretation is not updated
- the affected employee population is not fully identified
- the remediation findings are not translated into stronger controls.
Amending the past issue does not always automatically fix the future. During the post-remediation phase, a review should confirm that the issue has been resolved.
| What Organisations Should Consider Now
Organisations should consider a focused review of their payroll compliance, encompassing changes from 1 July. The review should be based upon the organisation’s actual payroll risks.
This review may cover employees covered by different awards, employees close to minimum rates, employees working overtime and groups that are processed through different payroll systems.
A review of these controls could investigate:
- updated rates against the relevant industrial instrument
- the effective date of the change
- linked allowances and loadings
- overtime and penalties
- PAYG withholding outcomes
- superannuation timing and calculations
The scope of these procedures does not need to be extensive, but it should be targeted and deliberate.
| Confirming the Payroll Outcome
Effective payroll compliance starts with collaboration. It cannot be solved by payroll or digital solutions alone. Consistent compliance requires payroll practitioners, employment lawyers/IR and audit specialists working together to ensure that payment outcomes are legally correct, operationally achievable, and supported by evidence.
As several payroll changes take effect from 1 July, organisations should consider whether those changes have been applied correctly to their relevant employee groups.
Russell Bedford works directly with organisations on payroll remediation, entitlement modelling and targeted payroll reviews. Our work helps to identify what occurred, who may have been affected, the potential financial impact and the practical steps to address the underlying issues.
