Payroll is one of those business tasks that seems simple on the surface: pay your employees the right amount, on time, and lodge what needs to be lodged. Easy, right?
But in reality, payroll is one of the highest-risk compliance areas for Australian small businesses. The rules are complex, often misunderstood, and change more frequently than most owners can keep up with. Even well-meaning businesses can get it wrong without knowing—sometimes for years.
Here are the most common situations where a small business owner may have payroll wrong and the red flags to watch for.
1. You Haven't Properly Classified Your Workers
Many payroll problems start before the first payslip is even issued.
You might have payroll wrong if:
- You're not sure whether someone is a casual, part-time or full-time employee
- You've hired someone as a contractor "because it's easier", but they work like an employee
Misclassification can cause underpayments, incorrect leave accruals, wrong penalty rates, and Super Guarantee issues—and can also trigger Fair Work disputes.
2. You Don't Know Which Award Applies (or You Think No Award Applies)
This is rarely true. In Australia, Awards apply to most employees—even if you paid for a HR specialist to write a contract for a salaried employee.
You might have payroll wrong if:
- You can't confidently name the Award(s) that apply to your staff
- You've been paying "above the minimum" without checking entitlements like overtime, allowances, or penalty rates and Award Allowances
- You use flat rates to simplify payroll without validating they meet the Award for every hour worked
Awards are complex and updated regularly. Missing an update can quickly create underpayments.
3. You're Not Paying Overtime or Penalty Rates Correctly
When staff work:
- early mornings
- late nights
- weekends
- public holidays
- more hours than their contract
there are often extra rates to consider even if you feel the base rate is "above Award".
You might have payroll wrong if:
- You don't track rostered vs. actual hours worked
- Your payroll system isn't set up with the right Award rules
- You're guessing which hours attract penalties
Even small errors add up fast across a year especially when they are compounded by being used in Super calculations.
4. You're Not Keeping Accurate Time and Wage Records
The Fair Work Ombudsman requires very specific time, attendance, and pay records.
You may be non-compliant if:
- Timesheets are handwritten, incomplete, or approved late
- Breaks aren't recorded
- You're adjusting hours verbally without evidence
- You don't keep payroll records for the full required period
Poor record-keeping means that in any dispute, Fair Work will assume the employee's version of events is correct.
5. You're Guessing Leave Accruals
Leave rules vary massively depending on:
- Employment type
- Award
- Hours worked
- Length of service
- Whether the employee is casual or permanent
You might have payroll wrong if:
- Leave balances "don't look right" but you're not sure why
- You pay leave loading for everyone—or for no one—without confirming entitlement
- You're manually adjusting leave as you go
Incorrect leave accruals are one of the top causes of backpay audits.
6. Super Isn't Being Treated Correctly
The Super Guarantee is complex and mistakes are now taken very seriously.
You might have payroll wrong if:
- You're unsure which payments attract super (e.g., bonuses, allowances, some leave)
- You only pay super quarterly instead of each pay run
- You're not checking super payments have cleared into employee funds
- You have contractors you're supposed to pay super for
Super errors can trigger ATO penalties and SG Charge—expensive, compulsory, and non-deductible. And now that STP Phase 2 is embedded it is a lot easier for the ATO to tell when you are late with Super AND they are far more proactive about chasing unpaid Super.
7. Your Payroll System Isn't Set Up Properly
Even the best software won't fix payroll if it's been incorrectly configured.
You may be at risk if:
- You accepted all the default settings when setting up payroll
- You're still using old pay templates after Award changes
- You're not using automated Award interpretations where available
- You haven't done a yearly payroll review or audit
Technology helps—only if it reflects accurate compliance rules.
8. You Don't Understand Your STP Reporting Obligations
Single Touch Payroll requires accurate, real-time reporting every pay.
Payroll might be wrong if:
- You redo pay runs to "fix things" without correcting STP submissions
- You're not reconciling wages, PAYG, and super each quarter
- You don't know what to do when an STP event is rejected
Incorrect reporting can lead to inconsistent ATO data, employee tax issues, and audit flags.
9. You're Doing Payroll After Hours, Rushed, or By Memory
This is one of the biggest hidden risks.
You might have payroll wrong if:
- Payroll feels like a last-minute task
- You're juggling rosters, BAS, customer work, and payroll at once
- You rely on your staff telling you their hours
- You're "fixing small mistakes next time"
When payroll isn't prioritised, errors creep in—every time.
10. You Haven't Had a Payroll Audit in Years (or Ever)
Many small businesses only discover payroll issues after:
- A Fair Work complaint
- A business sale
- A grant or funding application
- An employee questions their pay
- An accountant finds a discrepancy
By then, it's often too late.
A proactive payroll review helps catch issues early—before they become expensive.
Payroll Is a Compliance System, Not Just a Task
Getting payroll right isn't about pressing "approve" on pay day. It's about ensuring your business meets its legal obligations, protects employees, and avoids costly penalties.
Small businesses have a lot on their plate, and payroll is one of the easiest areas to get wrong without realising it.
If you're starting to suspect something may be off—or you just want peace of mind—consider a professional payroll audit or outsourced payroll support. It's often far cheaper than the cost of getting it wrong.
