Paying employees correctly is a fundamental responsibility for every public sector entity. However, recent payroll reviews and action by regulators across Australia have shown that underpayments are occurring even in organisations that have established payroll systems and governance arrangements.
The impacts of wage underpayments can extend beyond repaying affected employees. They can reduce employee trust, take significant time and effort for entities to resolve, attract regulator attention, and damage an entity's reputation.
Our Education 2025 (Report 15: 2025–26) report to parliament highlighted that wage underpayments remain an ongoing risk in the university sector. All entities can use the lessons from this sector to better understand, assess, and respond to their own payroll risks.
Why wage underpayments happen
Wage underpayments are usually not caused by a single payroll mistake. They often result from a combination of people, process, and system issues that build up over time.
Common causes include:
- misinterpreting enterprise agreements, awards, or employment contracts
- payroll system errors, including incorrect pay rates, allowances, or automated calculations
- incorrect or incomplete recording of hours worked, overtime, or work that should be paid at a different rate
- manual processes that sit outside normal payroll controls
- changes to employment arrangements that are not reflected in payroll systems and processes
- limited monitoring and review of payroll compliance.
While wage compliance risks can affect any entity, some entities face a higher risk due to the nature of their operations and workforce arrangements.
This includes entities with:
- large workforces and high volumes of payroll transactions
- multiple enterprise agreements, awards, or employment arrangements
- significant casual, temporary, seasonal, or shift-based workforces
- complex pay arrangements, including overtime, allowances, penalty rates, and minimum engagement requirements
- operations across multiple locations, which can make it harder to apply payroll practices consistently.
The risk can also increase during periods of change, such as payroll system implementations or upgrades, restructures, organisational growth, or changes to employment arrangements. During these periods, existing processes and controls may not keep pace with the changes.
Why it matters
When entities identify significant wage underpayments, they often need to carry out extensive reviews of past payroll records to understand the cause, determine who has been affected, and calculate any amounts owed. They must then repay affected employees, including any related superannuation and interest where required.
Wage underpayments can also result in regulatory action. Recent action by the Fair Work Ombudsman shows that wage compliance remains an area of focus for regulators and highlights the importance of strong oversight and payroll controls. For example, since June 2025, multiple Queensland universities have entered into enforceable undertakings with the Fair Work Ombudsman after identifying historical wage underpayments. These legally binding agreements require entities to address past underpayments and demonstrate how they will improve their payroll practices and prevent similar issues from occurring in the future.
Underpayments can affect employee trust and confidence, particularly where issues have existed for a number of years before being identified. The longer issues remain undetected, the more difficult they can be to investigate, remediate, and prevent from recurring.
How entities can manage the risk
Entities can consider the following actions to help manage wage underpayment risk:
- reviewing employment agreements, pay practices, and payroll processes to identify and address payroll risks
- reviewing and updating payroll settings and pay codes to align with enterprise agreements and other regulatory requirements
- ensuring payroll and timekeeping systems support accurate record-keeping and payroll processing
- providing regular training and guidance materials on current pay practices
- monitoring payroll information to identify unusual trends, exceptions, or potential payment issues
- performing ongoing reviews of higher risk pay arrangements and employee groups
- strengthening oversight by executive management, boards, and audit committees
- taking prompt action to investigate and address payroll issues, including engaging proactively with the Fair Work Ombudsman where significant risks or underpayments are identified.
Wage compliance is a governance issue, not just a payroll issue. While the causes of underpayments vary, the lessons are consistent: understand the risks, review payroll practices regularly, and act quickly when issues are identified.