Common payroll pitfalls to avoid

Payroll compliance is a critical aspect of running any business in Australia. With complex regulations and ever-changing legislation, it’s easy for even well-intentioned organisations to fall foul of the law. Below, we highlight the most common pitfalls that can cause businesses to become non-compliant, focusing on key triggers that employers should watch out for.

1. System limitations

Many businesses rely on outdated or inadequate payroll systems that lack the flexibility to accommodate legislative changes or unique award conditions. These limitations can result in incorrect calculations, missed updates, or the inability to track important data, all of which may expose a business to compliance risks. Sophisticated systems offer more controls.

2. Employment contracts

Employment contracts should accurately reflect current legislation, awards, and organisational policies. Outdated contracts can leave businesses exposed if terms don’t align with legal requirements or award changes, increasing the risk of non-compliance and disputes.

3. Misclassifying employees and contractors

Treating an employee as an independent contractor to avoid paying entitlements like leave, superannuation, and tax can have consequences. Having an ABN does not automatically make someone a contractor, it is important to understand the difference.

If unsure reach out to our advisers to understand the "common law" tests (e.g., control over work, use of own tools) and/ or refer to the Fair Work Ombudsman’s "Employee or Contractor" resources.

4. Leave tracking and loading

Accurate tracking of annual, sick, and long service leave is essential. Mistakes often occur when leave balances are managed manually or not updated in real time, resulting in incorrect entitlements or underpayments. This can lead to disputes and potential legal action from employees. Additionally, leave loading entitlements, which provide employees with extra pay while on annual leave, are often overlooked or misapplied. Not all employees are entitled, and the percentage can differ depending on the award or enterprise agreement. Incorrect application can result in back payments and fines.

5. Award rates and interpretation

Australia’s award system establishes minimum pay rates and working conditions for employees. It’s important for businesses to regularly monitor updates and adjust their payroll systems accordingly, as failing to apply the correct rates, especially when awards change, may result in staff being underpaid. In addition, each award outlines specific clauses covering hours, allowances, and overtime. Misinterpretation or misunderstanding of these clauses can lead to breaches, underpayments, or workplace disputes. To ensure compliance, employers must correctly classify their staff and apply the appropriate award relevant to their role.

6. Superannuation processing

Superannuation obligations are tightly regulated in Australia, and failing to meet these requirements can result in significant penalties from the ATO. Common pitfalls include not paying the correct amount, missing payment deadlines, or overlooking eligible employees, all issues that often stem from manual processing or poor integration between payroll and superannuation systems. With the introduction of Payday Super on 1 July 2026, it is more crucial than ever to ensure your superannuation processes are up to scratch. Review whether your current payroll software can accommodate Payday Super requirements. If it falls short, seek guidance from your adviser or payroll provider about necessary upgrades, or explore switching to a system that keeps you compliant.

7. Single Touch Payroll (STP) Phase 2 reporting failures

Failure to submit accurate, complete, and timely Single Touch Payroll (STP) data to the ATO is a common pitfall to avoid. STP Phase 2 requires detailed reporting, including income type and disaggregated gross amounts. Use compliant cloud-based software to map pay items correctly. Review reports before submission and finalise STP at the end of the financial year.

8. State payroll tax

State payroll tax thresholds and rates vary between states and territories and come with a level of legislative complexity that is often overlooked. Businesses can inadvertently breach compliance by failing to register when required, miscalculating their liability, or not including all relevant payments. Regular reviews and up-to-date knowledge of local requirements are vital. OSR audits can be a painful exercise that can potentially unearth several years once an error is determined. Not to mention the penalties &/or interest charges.

9. Relying on manual processes

Relying on spreadsheets for complex payroll calculations, especially in high-volume environments, significantly increases the risk of human error. It is worth investing in automated, reputable payroll software that is regularly updated to reflect legislative changes.

10. Ignoring data security

Failure to maintain robust cybersecurity measures leaves sensitive employee information, such as TFNs, bank details, and personal records, vulnerable to hacks and data breaches. Implement multi-factor authentication and encryption and ensure system upgrades.

Breaches of the Privacy Act or GDPR can result in hefty fines.

11. Lack of internal controls and training

Entrusting one individual with the entire payroll process heightens the risk of both fraud and errors, especially if staff lack adequate training. To mitigate these risks, it's essential to segregate duties—ensure the person preparing payroll isn't solely responsible for its approval. Regular, targeted professional development for payroll staff will further strengthen your internal controls and reduce mistakes. Alternatively, consider if an outsourced model provides you with a more robust and efficient solution.

Ensuring compliance with payroll obligations demands careful attention, reliable and up-to-date payroll systems, and a solid grasp of current laws and awards. If you have concerns about your in-house team or existing systems, outsourcing your payroll can be a smart move, helping to minimise the risk of costly errors and uphold your reputation as a fair, compliant employer.

To undertake a payroll audit or discuss outsourcing your payroll needs, please speak with your Forvis Mazars adviser or one of our payroll experts below:

Sydney – Padmini Dixit	Melbourne – Jonathan Cicutto
+61 2 9922 1166	+61 3 9252 0800

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Published: 16/04/2026

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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