Payroll Compliance for SMEs: Best Practices to Stay Out of Trouble

Justine Pepper
1 day ago
3 min read

In recent years, payroll compliance has become one of the biggest risk areas for Australian employers. From small local businesses to national brands, no one is immune to underpayment scandals. For SMEs, staying on top of wage obligations can feel overwhelming—but it doesn’t have to be. By following a few best practices, you can reduce risk, build trust with your team, and avoid costly penalties.

Here’s a breakdown of what smart employers are doing to get payroll right.

1. Understand Your Obligations

Before you can ensure compliance, you need to know what you're legally required to do. That means understanding the correct:

Award or enterprise agreement that applies to each employee
Minimum pay rates, allowances, penalties, and overtime
Entitlements like leave loading, meal breaks, and travel allowances
Superannuation and tax obligations

It’s not enough to “set and forget” your payroll—these requirements can change annually.

2. Design Payroll Systems for Accuracy

Even honest mistakes can cost your business dearly. That’s why it’s critical to build systems that reduce room for error:

Invest in reliable payroll software that’s award-compliant and regularly updated.
Automate entitlements and record keeping where possible.
Set up quality checks, such as comparing rosters and timesheets against pay runs.
Limit manual processes—these are the biggest source of errors.

If you're unsure, consider a payroll audit or seek advice from Essential HR.

3. Monitor and Review Regularly

Ongoing compliance is not a one-time task. You should:

Reconcile pay vs. entitlements at least once a year
Check your salary arrangements (especially if using annualised salaries) to ensure they still meet minimum award rates
Keep accurate records of hours worked, breaks, allowances and classification changes

Set up internal processes to review your payroll calculations, especially when employees change roles or awards are updated.

4. Communicate Clearly With Your Employees

Employees should understand how their pay is calculated and who to go to with questions. This means:

Being transparent about pay rates and entitlements
Having a point of contact for payroll queries
Creating a clear process for raising and resolving concerns
Providing detailed pay slips that show how wages and entitlements are calculated

Open communication builds trust—and can reduce complaints to the Fair Work Ombudsman (FWO).

5. Fix Mistakes Promptly—and Pay Interest

If you discover an underpayment, don’t delay. Take these steps:

Investigate thoroughly to identify who’s been affected and over what time period
Consult experts to apply the correct award interpretation
Calculate and back-pay all amounts owed, including interest
Inform affected employees with clear communication
Report the issue to the FWO if it’s systemic or large in scale

Paying interest isn’t legally mandatory in all cases—but it shows goodwill and can reduce the chance of enforcement action

6. Build a Culture of Compliance

The best way to avoid future issues? Make payroll compliance part of your company culture.

Train your managers and payroll staff on award obligations
Allocate ownership for payroll compliance at the executive level
Conduct regular internal audits
Implement technology that flags compliance risks
Empower employees to raise issues early

Remember: Fair Work expects you to proactively correct issues and put safeguards in place to prevent recurrence

Final Thought: Payroll Isn’t “Set and Forget”

For SMEs, payroll compliance might feel like a burden—but it’s a critical part of your employer obligations. And the cost of getting it wrong can be far greater than the time and resources required to get it right.

Need help reviewing your payroll processes or managing a remediation issue? Our team of HR and compliance experts is here to support your business every step of the way.

Let’s make compliance easier—so you can focus on growing your business.