Wage underpayments: The hidden risks for HR

With the right tools and a strong audit trail, you’ll not only streamline payroll processes but also demonstrate to leadership that payroll compliance is in capable hands, now and into the future, writes Fred van der Tang.

Australian employers are facing increased compliance pressures in the new year.

From 1 January 2025, new federal laws mean that employers who deliberately withhold wages or entitlements could face up to 10 years in prison and fines of up to $1.65 million.

The aim is to deter deliberate wage theft, but it also highlights the continued scrutiny on payroll.

For years, wage underpayment issues have made headlines in corporate Australia, with major brands facing scrutiny over the accuracy of their payrolls.

The Fair Work Ombudsman’s 2023–24 report revealed that over $473 million was recovered for 160,000 underpaid workers, with more than $333 million of which came from large organisations.

For most businesses, underpayment isn’t intentional; it’s a byproduct of complex industrial agreements, fragmented team management, manual processes, and infrequent audits.

Despite HR’s best efforts, payroll errors can still slip through, and under the new framework, the consequences are more severe. The complexity of payroll leaves errors undetected, limiting HR’s visibility and delaying action.

This often leads to costly back payments, expensive remediation, and lasting damage to the employer brand.

Payroll pitfalls

Given the complexity of Australia’s payroll landscape, it’s no surprise that underpayments still happen, even in the most resourced organisations.

HR leaders are aware of the critical importance of payroll compliance, but getting it prioritised can be challenging. It’s often hidden from view, hard to quantify, and competing with more immediate business pressures.

On top of that, many have had their hands full and their fingers burnt by large, complex, and costly ERP, time and attendance, and payroll system implementations. The last thing anyone wants is another big project.

The challenge isn’t just complexity; it’s outdated processes. Many organisations still rely on spreadsheets, manual reviews and sample audits that create unnecessary risk.

Payroll errors are often caught too late, during external audits or, worse, when employees raise complaints, by which point the financial and reputational damage is done.

However, ignoring the problem isn’t an option; small errors can snowball into significant underpayments that will then result in an even bigger back-payment project.

The hidden costs of waiting

When HR leaders must undertake a remediation project, the costs and resources required are far more extensive than simply implementing stronger compliance controls upfront. Addressing underpayments, including super and interest, often involves significant time, additional hires, and increased pressure on the payroll team.

The strain of a remediation project goes beyond financial costs; it erodes employee trust, damages the employer brand, and requires a substantial investment of resources that could have been avoided with proactive, stringent compliance measures from the start.

Implementing robust payroll controls now is a far more effective and less disruptive approach than dealing with the fallout of underpayment errors later.

Payroll compliance solutions for HR leaders

I understand that HR leaders seek greater visibility and assurance that their payroll teams are getting it right. However, achieving that using Excel has proven ineffective.

To avoid the costly and labour-intensive fallout of a remediation project, it’s crucial to work smarter by automating compliance audits with real-time payroll monitoring tools.

These tools not only give your team the visibility to catch errors early but also provide you with tools to prove to senior leadership that payroll is under control and compliant.

By building an internal audit log of payroll reviews and compliance checks, you create a solid, defendable position. This log not only supports your team in staying compliant but also acts as valuable evidence that you’ve taken every step to get it right.

Your payroll may never be perfect, but by investing in technology and establishing a robust governance framework, you’ll be in the best position.

With the right tools and a strong audit trail, you’ll not only streamline payroll processes but also demonstrate to leadership that payroll compliance is in capable hands, now and into the future.

Fred van der Tang is the chief executive of PaidRight.