Why payroll compliance needs to be a top priority for all businesses

Payroll compliance was thrown into the spotlight a number of years ago, when it was uncovered that many well-known Australian brands had underpaid their staff by millions. Since then, there has been a steady flow of organisations from various industries who have been found to have underpaid their employees. The Fair Work Ombudsman (FWO) responded by increasing their use of detection and enforcement measures and targeting areas that were shown to have higher levels of non-compliance.

Every year the FWO publishes its Annual Report which, amongst other things, details the results of these detection and enforcement measures. The latest Annual Report, once again, showed another large increase in the number of underpayments identified and the FWO’s use of enforcement measures. Throughout the year, the FWO recovered $532 million which was back paid to 384,805 workers, showing the size of the issue facing Australian businesses, employees and government.

What does this mean for businesses?

Essentially, it means businesses need to stop being complacent towards the issue of payroll compliance. Year on year, the FWO produces reports illustrating how rapidly there are increasing their levels of enforcement. Compared to the 2019-20 report, the most recent version showed a 146% increase in compliance notices delivered and an increase of 154% in litigations filed. It is evident that the FWO is ramping up their enforcement actions, meaning the risk businesses run by not taking payroll compliance seriously will only continue to build.

What are the FWO’s targets?

The FWO investigates potential non-compliance issues often based off anonymous reports or from randomly auditing business, particularly those with higher risk factors. High risk factors can include types of industries, business structures or employment arrangements as well as high levels of immigrant workers or junior employees.

Large Corporates

Many of the underpayments identified by the FWO have come from large corporate businesses. This is due to a combination of high numbers of staff, complacent attitudes towards employment and payroll compliance, and the complexities associated with payroll compliance. This creates an environment that allows small underpayments to quickly turn into considerable amounts across a large network of employees. In the 2021-22 financial year, the FWO recovered roughly $279 million in underpayments from large corporates demonstrating their focus towards that area.

Fast Food, Restaurant, Hospitality Industries

The fast food, restaurant and hospitality industries have consistently been in the sights of the FWO and will continue to be, based on their recent report. These industries have caught the attention of the FWO due to their high levels of non-compliance and often higher levels of vulnerable employees, compared to other businesses. For these reasons, the FWO pays particularly close attention and have listed these industries in their priorities for the past few years.


Franchise businesses, similar to large corporates, are considered higher risk by the FWO because of the increased damage small payroll errors could have across a whole network of franchises and employees. The FWO’s focus is more towards franchisors and their responsibility for their franchise networks. Under the Fair Work Act 2009, franchisors must take ‘reasonable steps’ to prevent their franchisees from underpaying their employees and acting in a non-compliant manner. These reasonable steps can include training and education, having procedures for employee complaints on possible workplace law breaches, and utilising systems to monitor and assess franchisees compliance with workplace laws.

Sham Contracting

Sham contracting is the misclassification of employees as contractors, which can lead to employees or contractors not receiving their proper entitlements. The differentiation between an employee and contractor has been blurred for some time, however, through recent High Court decisions, some clarifications have been made. This should make it easier for employers to understand the differences and reduce the likelihood of sham contracting happening inadvertently.

We recently ran a webinar on the differences between employees and contractors in light of those recent changes. Click here to access it.

What should businesses be doing?

Payroll compliance can often seem like a task too big, or something that isn’t necessary for ordinary businesses. However, that isn’t the case, and those assumptions can be dangerous for business owners to have.

So, what can you do? Payroll audits are a good starting point and identify underpayments or areas of non-compliance. Not only can you fix up immediate underpayments, but it will give you a strong understanding of areas of risk and vulnerability. If you want to find out more about our payroll audits, click here.

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