The fact that even large, well-resourced organisations are making mistakes shows just how complex payroll is. Today’s payroll teams are juggling a growing list of responsibilities – from keeping up with regulatory updates to managing different employee types, employment statuses and varying pay scales.
In this guide, we’ll explore six of the most common payroll mistakes, along with how to identify and avoid them.
Mistake #1: Misinterpreting Awards and Agreements
Australian workplaces are governed by modern awards and enterprise agreements – a guide for employment conditions across different industries and occupations. Often complex, detailed, and constantly changing, even experienced professionals can make mistakes if they’re not up to speed. Misinterpreting awards can quickly lead to payroll mistakes such as underpayments, missed entitlements, or non-compliance with Fair Work requirements.
What causes misinterpretations:
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Miscalculations in overtime provision: Organisations must be cautious when applying overtime rules as awards often include different sections. Even small oversights can lead to miscalculations. For example, some awards require a minimum 10-hour break between shifts — if this isn’t met, overtime may apply until the full rest period is taken. Overlooking these clauses can result in underpayment and compliance issues.
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Applying the same rules to both full-time and part-time employees: Some awards, like retail and clerical, require overtime penalty rates when part-timers work beyond their contracted hours. Be careful and don’t assume provisions are the same for all types of employees.
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Underpayment upon termination: Many payroll managers also make the mistake of not referring to the Fair Work Act during a termination process. For example, employees aged over 45, with at least two years of continuous service are entitled to an additional week of notice upon termination. This is in addition to any relevant employee award.
How to prevent:
- Ensure your process and systems reflect the latest award conditions and classifications
- Automate or set up system alerts to flag new entitlements due to shift changes or terminations
- Add checklists to your offboarding process to prevent misinterpretations
- Offer regular training to keep staff updated with award updates and compliance risks
Mistake #2: Miscalculating Leave Entitlements
In Australia, leave entitlements such as annual leave, personal leave and long service leave are regulated by the National Employment Standards (NES) and state-based laws. While most professionals are familiar with the basic rules, payroll errors often occur when dealing with shift workers, part-time staff, or when employees change status or relocate between states.
What causes the miscalculations:
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Paying only the base rate for annual leave
This is a frequent payroll mistake, particularly in sectors like health support and manufacturing. Industry awards often require annual leave to be paid in full, including penalties, allowances and leave loadings; as if they had worked. Failing to do so leads to underpayments and non-compliance.
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Overlooking leave loading in termination pay
Employees who are entitled to leave loading during their employment must also receive it for their final pay. This is often missed during offboarding due to rushed processes or manual errors.
How to prevent:
- Apply all relevant annual leave conditions (especially if your organisation falls under an industry-specific award)
- Regularly review award conditions and NES requirements to stay compliant
- Audit termination payments to detect and correct any errors
Mistake #3: Superannuation Errors
On paper, superannuation seems simple and straightforward but in practice – mistakes can still happen. Superannuation errors aren’t always about not paying, they’re often about paying too little, too late or to the wrong people, resulting in underpayments and non-compliance.
What causes superannuation errors:
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Underpaying superannuation
A common mistake payroll professionals make is paying super only based on regular wages or salary, leaving out other ordinary time earnings (OTE) such as bonuses, leave loading, cashed-out annual leave and payment in lieu of notice.
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Missing super for contractors misclassified as non-employees
Many employers misclassify contractors as external resources, rather than employees which then causes an error in superannuation payments.
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Late or inconsistent SG contributions
As outlined by the Australian Taxation Office (ATO), superannuation contributions must be made at least every quarter. Late payments or missing them altogether will lead to interests and steep penalties for employers who fail to contribute super accurately.
How to prevent:
- Calculate superannuation for all OTE and not just base salary
- Use a payroll software that calculates and remits superannuation
- Set reminders to meet super contribution deadlines
- Review contractor classifications for correct contributions
Mistake #4: Overpaying Employees
Overpayments are more common than people realise — and are often more difficult to resolve than underpayments. Employees are less likely to notice or report them, and under Fair Work rules, overpayments cannot be recovered without written consent, proof of how complicated it can get.
According to Tracy Angwin, CEO of the Australian Payroll Association, these kinds of payroll issues happen more frequently than employers expect.
What causes overpayment:
- Late terminations: If termination processing is delayed, employees may still receive pay after their employment ends.
- Outdated or incorrect job records: When job information is not updated in a timely manner, overpayment may occur due to incorrect hours, rates or employment status.
- Miscalculated hours: Misreported hours or duplicated time entries can result in overpaying employees for unworked time.
How to prevent:
- Ensure employees have sufficient leave balances before approving requests
- Give employees access to view their leave balances in the payroll system
- Require supervisors to report terminations promptly and same-day processing
- Set up clear processes for reporting changes to hours, pay rates, or employment status
- Regularly review payroll reports for inconsistencies and duplicate payments
Mistake #5: Falling Behind on Payroll Compliance
Without the right systems and processes in place, businesses risk falling behind on payroll compliance which can lead to under or overpayments, audits, or damage to their reputation.
What causes non-compliance:
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Outdated payroll systems: Legacy tools often miss automatic updates tied to changing legislation or award requirements.
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Unclear interpretation of awards and entitlements: With over 100 modern awards and frequent Fair Work changes, even experienced payroll teams can misapply conditions.
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Lack of regular compliance checks: Without scheduled audits or process reviews, small oversights can snowball into larger compliance breaches
How to prevent:
- Use modern payroll software with automation to keep up with legislative updates
- Ensure your software is always updated so changes are applied and calculated accordingly
- Use automation to eliminate non-compliance risks and free up time for strategic tasks
Mistake #6: Weak Payroll Management
Even when payroll teams have the right knowledge and experience, mistakes can still happen. Signs of weak payroll management include under-trained employees, occurrence of payroll frauds and lack of planning.
What causes weak payroll management:
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Lack of training and support: Without regular training, even experienced professionals will struggle to keep up with changing rules and complex scenarios – increasing the risk of payroll errors. According to the Australian Payroll Association’s 2019 Benchmarking Report, payroll managers only receive an average of 2.6 days of training annually, despite being responsible for millions in payment and legal compliance.
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Payroll fraud: Payroll fraud costs Australian businesses millions each year — and often goes undetected due to weak internal controls. To detect fraud like ghost employees or double payments, payroll teams need clear processes for authorisation, records and audits. Furthermore, having one person handle multiple steps in the payroll process increases the risk of fraud.
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No continuity planning: No one can predict the future but relying on one person or a small team for payroll is a disaster waiting to happen. Unexpected absences, employee turnover, or system failures can disrupt the next pay cycle — there needs to be a foolproof plan for business continuity.
How to prevent:
- Schedule routine training to keep staff skilled and up to date
- Segregate payroll duties among team members and track all activities
- Encourage staff to take leave to test continuity and detect gaps
- Have a contingency plan in place for sudden changes or system failures
Conclusion
Navigating the payroll landscape in Australia is no easy task. It’s complex, high risk and constantly evolving. But with the right tools, strategies and processes in place, payroll risks can be reduced significantly. According to Eightfold AI’s Future of Work Study, 77% of HR leaders surveyed said that they are already using AI to support payroll processing – proof of just how quickly this industry moves.
Having the right systems in place is only the beginning. Today, more and more businesses are leveling up by embedding AI into their payroll practices.
Want expert advice on how to manage and maintain payroll compliance? Download our Quick Guide to Payroll Compliance for easy-to-follow tips from our payroll experts.
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