When investigating payroll compliance Australia, there are different payroll compliance rules and regulations to follow, unique to the country’s ecosystem. Employee law the world over is a living, breathing animal which responds to social and political changes—and modern payroll compliance can be seen as a tangible demonstration of new standards of practice and ways of working.

In 2023, the Fair Work Amendment (Closing Loopholes) Bill 2023 was given Royal Assent, thus enshrined into legislation by the Parliament of Australia, resulting in a complete payroll compliance rules shake-up. Now, the onus has very much been shifted to the employer’s side to be transparent and adhere to these new regulations. This guide is here to lead you through this new and evolving legislation and explain how it could impact you and your business if you don’t get It right.

Australia: Payroll compliance guide 2023

Payroll laws and regulations

In Australia, like elsewhere, payroll compliance rules should be at the core of any HR and finance team, meeting minimum legal payroll compliance requirements is the foundation of all HR for a myriad of ethical, legal and financial reasons. For payroll compliance Australia, there are two main pillars of legislation brought in to protect workers and organisations; namely the Fair Work Act that works alongside National Employment Standards (NES), which includes Modern Award standards.

Akin to the Employment Rights Act in the UK, Australia’s The Fair Work Act 2009 (FWA) codified employment practices into law. It contains an overarching employment framework setting out all the rights of employees and expectations on employers. Within this, the National Employment Standards (NES) outlines minimum employment responsibilities such as the minimum wage, working hours and leave entitlements for all Australians, including deductions such Medicare, the National Health Scheme. Then, the Modern Awards applies the FWA and NES rules with more detail by sector, embodying industry-specific regulations for minimum pay rates and conditions.

All these payroll compliance Australia rules and regulations are legally binding, and subject to legal and financial penalties if not followed to the letter.

Payroll tax compliance

Similar to the UK, Australia follows a Pay As You Go model where tax is taken at source and managed by the employer, not the employee. When it comes to payroll compliance Australia, there are stringent rules on managing salaries, bonuses and benefits, along with managing the deductions that go to the Australian Tax Office, which will be different for each individual employee.

Here are the main five tenets of payroll tax compliance that must be met:

  1. Accurate calculations
  2. Meticulous record-keeping
  3. Timely reporting
  4. Clear deductions documentation
  5. Up-to-date legally

Comprehensive reporting and bang-on calculations and underpin every aspect of payroll compliance rules, making sure all this information is managed effectively, and most importantly accurately, is the responsibility of HR and finance teams. With legal and financial penalties for non-compliance, the buck stops with you guys.

By the end of 2023, most of the new legislation for payroll compliance Australia is in effect. The big ones for payroll tax compliance were around transparency about deductions, pay secrecy and contracts as the next section will unveil.

The Fair Work Act 2023

The Fair Work Act has recently been updated in the Fair Work Amendment Bill 2023, which closes any loopholes businesses might have been using to bypass the spirit of the original legislation. The Fair Work Amendment Bill 2023 updates that affect payroll compliance rules include:

  • Flexible working and parental leave
    Flexible work requests for people who are pregnant or have experienced domestic violence must be considered. Up to 12 months unpaid parental leave extension is a now a right. The FWA has powers to intervene in disputes, and collective multi-employer bargaining for such rights is allowed.
  • Protected attributes
    Now includes breastfeeding, gender identity and intersex statuses are protected. Discrimination policies must be updated. 
  • Positive duty
    Now, employers cannot just stand by and not get involved, thus perpetuating a hostile work environment. Policies for sexual harassment, sex discrimination and bias in potentially hostile workplaces must be updated and training given where needed.
  • Pay secrecy
    This is now a complete no-go. Employers must be transparent with terms of contracts, incentives and bonuses, pensions renumeration and other financial aspects of employment, as reasonably necessary.
  • Job ads
    Accurate reflection of salary rates in job advertising, as per Fair Work Act minimum wage rates.
  • Fixed term contracts
    All current contracts should be reviewed, and any fixed term contracts reconsidered to be moved to a more sustainable alternative. HR teams must issue a Fixed Term Contract Information Statement (FTCIS) clearly outlining the terms of the contract and the commitment on the employer’s side to offer a permanent contract when able.
  • Zombie agreements
    Deals with old agreements and contracts made before the FWA came into being. Any such agreements all end by December 2023.
  • Employee authorised deductions
    Deductions on employees’ salaries can only be made if they are to the benefit of the employee themselves. Employers must be transparent with any deductions made at source and have the acknowledgment of the employee in this.
  • Pensions
    Ensure updated superannuation terms added to current contracts, matching the increased 11% rate in the National Employment Standard.

On a social level, changes to the Act protect individual identities—whether that’s gender, sexuality, race, health or child-rearing status—protecting against discrimination and ensuring businesses offer flexible ways of working for all. With financial penalties for non-compliance. Such considerations will have an impact on the payroll compliance system in any HR team, especially in terms of salary expectations and financially levelling the playing field.

The cost of non-compliance

When it comes to punishment for non-compliance with the Fair Work Act, the Australian Fair Work Ombudsman has some teeth. If the evidence is there, the Fair Work Ombudsman will take employers to court on employees’ behalf and, if successful, the court can impose fines on both a company and individuals working at a company, such as the company director, HR manager or other manager, and the accountant.

Fines are outlined as follows, with financial penalties increasing ten-fold for serious breaches.

Breaking employment law

  • Individual: $18,780 AUD per contravention
  • Company: $93,900 AUD per contravention

Serious contraventions

  • Individual: $187,800 AUD per contravention
  • Company: $939,000 AUD per contravention

Companies may also be court ordered to:

  • Pay specific entitlements, with interest
  • Retraining to establish new practices and stop non-compliant old ones
  • Undertake an audit and regroup from there
  • Re-employ a member of staff
  • Pay compensation for loss suffered, as well as any and all of the above

As you can see, the powers of the FWA are comprehensive and wide-ranging, with hefty financial penalties for the company and individual HR employees. With the update to the Fair Work Act in 2023, the Fair Work Ombudsman has been further empowered—and its new head, Anna Booth, is not stopping at just financial penalties. As she told ABC News, she is not afraid to pursue criminal liability and imprisonment for employment lawbreaking.

Read more about the Fair Work Ombudsman here.

Common payroll compliance mistakes in Australia

As you can see, penalties for non-compliance are not to be underplayed. And, sorry, ignorance of the law is no defence from potential legal and financial ramifications. Here are a few ways that payroll compliance can potentially fall down, with real-world examples of the penalties involved.

1. Inaccurate record-keeping
For any company, failure to maintain precise records will inevitably lead to discrepancies and it’s essential to stay accurate in payroll compliance processing.

Take a look at this case…
Company name: Polytrade Employment Services Pty Ltd
Date: August 2023
Non-compliance failure: Underpayment, record keeping and payslip contraventions
Company penalty fine: $375,515 AUD

2. Employee misclassification
Misclassification of employees’ tax bracket or status can result in underpayment or overpayment of employees. You’ll probably have guessed by now—yes, the responsibility lies with the employer.

Take a look at this case…  
Company name: Saga Source Pty Ltd
Date: November 2023
Non-compliance failure: Calculations of back-pay and entitlements classification
Company penalty fine: $12,000 AUD
Individual penalty fine: $2,500 AUD                                             

3. Ignoring Modern Awards
Specificity is the key here, as non-compliance in industries governed by Modern Awards can have big safety implications (e.g. mining, construction, forestry, etc.), so non-adherence is an employee health and wellbeing, as well as legal consideration.

Take a look at this case…  
Company name: Cross River Rail
Date: July 2023
Non-compliance failure: Failure to comply with OHS requirement
Company penalty fine: $225,320 AUD

How to avoid payroll compliance mistakes

As we’ve seen, failure in payroll compliance Australia is a serious matter. Breaches of the Fair Work Act and accompanying legislation can have a huge legal and financial impact on the company and the individual. The best way to mitigate this is the right payroll compliance software, which can bring in all sides of payroll into one comprehensive platform. Whether it’s payroll compliance rules for taxation, deductions, benefits, employee rights or changes in legislation, the right payroll compliance software can keep everything organised and legally compliant. Staying informed, understanding consequences and embracing payroll software are key to successful payroll management. Bonza in any country, but especially Australia!

Find out how world-class payroll compliance software form ADP can help you today.