Payroll Compliance Auditing: A Complete Guide for Businesses

Payroll is at the heart of every business. Employees rely on it for accurate, timely pay, and regulators expect it to be fully compliant with tax laws, workplace awards, and enterprise agreements. Yet payroll mistakes are surprisingly common—and they can cost businesses dearly in fines, back payments, reputational damage, and lost trust. That’s where payroll compliance auditing comes in. 

A payroll compliance audit is a systematic review of your company’s payroll processes, records, and controls to ensure they meet legal, contractual, and internal standards. 

Unlike a standard financial audit, payroll auditing zeroes in on areas such as: 

Employee classification – Are workers correctly classified as full-time, part-time, casual, or contractors? 

Award and enterprise agreement compliance – Are pay rates, penalty rates, overtime, and allowances correctly applied? 

Leave entitlements – Is annual leave, sick leave, and long service leave accrued and paid correctly? 

Superannuation – Are contributions calculated and paid on time? 

Tax obligations – Are PAYG withholding, payroll tax, and reporting obligations accurate and up to date? 

Record-keeping – Are time and attendance records complete, accessible, and retained for the required period? 

Avoiding penalties and back pay -  In Australia,  Fair Work and the ATO take payroll breaches seriously. Underpayments, even accidental ones, can lead to back-pay orders, fines, and in some cases criminal charges. 

The University of Sydney underpaid employees over a nine year period and were ordered to pay $23 million in backpay and fines.

Protecting your brand - Wage underpayment scandals have made headlines across multiple industries. A proactive audit shows employees, clients, and regulators that you’re committed to fair and lawful practices. 

Remember George Calumbaris, the restaurateur and Master Chef judge? His company underpaid employees by a total of $7.8 million in wages and superannuation. While George undoubtedly has very little to do with payroll, and I believe he had no intention to underpay his staff, he took on the responsibility as the business owner, lost his gig on Master Chef and ultimately suffered a significant collapse of his hospitality group.

Audits often uncover inefficiencies, such as duplicate processes, reliance on spreadsheets, or outdated systems. Correcting these can save time and reduce human error. 

Building employee trust 

Transparent and accurate payroll builds confidence among staff, reducing disputes and turnover. 

Systemic underpayment issues can affect thousands of employees and erode employee loyalty. The internal and public backlash fexperienced by Woolworths and Coless over their underpayment of store managers affected 28,000 employees and undermined employee trust throughout those companies and the public at large.

Incorrect timekeeping:  Relying on manual timesheets that don’t capture real working hours. 

Misinterpreting awards: Many businesses struggle to keep up with complex, frequently updated modern awards. 

Poor contractor management: Classifying contractors incorrectly can trigger significant liabilities. 

Outdated payroll / time and attendance systems: Legacy systems may not align with current legal requirements. 

Lack of internal controls: Weak segregation of duties or limited oversight can lead to errors—or even fraud. 

Regular internal audits – Don’t wait for regulators. Conduct payroll reviews at least annually, and more frequently if you operate in a high-risk industry. 

Automate where possible – Use integrated time and attendance systems to capture accurate working hours and link them directly to payroll. 

Stay updated – Appoint a compliance officer or subscribe to industry alerts to track changes in Fair Work rulings, awards, and legislation. 

Document everything – Keep thorough records of payroll processes, decisions, and corrections. 

Seek expert advice – Engage specialised payroll auditing service providers.

Modern payroll and time & attendance systems reduce risk by: 

• Automatically applying award interpretation rules. 
• Syncing time data with payroll in real-time. 
• Flagging anomalies such as excessive overtime. 

• Generating audit-ready reports for regulators.

By embedding compliance into everyday processes, technology helps businesses avoid costly errors and focus on growth. 

Payroll compliance auditing isn’t just about avoiding fines, it’s about protecting your people and your business. With the right mix of process, technology, and regular reviews, you can turn compliance into a strength rather than a liability. 

If your business hasn’t undertaken a payroll compliance audit recently, now is the time. It could save you far more than it costs. 

If you owuld like to discuss payroll compliance email or call on the number below and I will put you in contact with a specialist service provider.

Time & Attendance Consultant

jimc@timeandattendance.com.au

1300 553 254

0437 772 977