C Suite Management Needs to Take Responsibility for Your Payroll Compliance
“The FWO regulator has made it clear that payroll governance is now considered a board-level responsibility, not just an HR or payroll function.”
In 2026, the Fair Work Ombudsman (FWO) continues its strong focus on payroll compliance, with an emphasis on preventing underpayments before they occur and holding employers accountable when systems fail. The regulator has made it clear that payroll governance is now considered a board-level responsibility, not just an HR or payroll function.
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The key payroll compliance priorities in 2026
- Wage underpayments and payroll accuracy
This remains the FWO’s highest enforcement priority. Inspectors are focusing on:
- Correct minimum pay rates
- Penalty rates
- Overtime
- Allowances
- Annual leave loading
- Public holiday payments
- Final pay calculations
The regulator continues to target employers with systemic payroll errors rather than isolated mistakes.
- Modern Award compliance
Many large underpayment cases stem from incorrect award interpretation.
The FWO is checking whether employers are correctly applying:
- Classification levels
- Ordinary hours
- Rostering rules
- Breaks
- Shift penalties
- Allowances
- Award updates
Businesses relying solely on payroll software without validating award interpretation remain at high risk.
- Annualised salary (“better off overall”) arrangements
The Court’s Decision on Annualised Salaries has Rewritten the Rules for Australian Employers
The FWO continues to scrutinise salaried employees to ensure annual salaries genuinely compensate employees for:
- Overtime
- Weekend work
- Public holidays
- Penalty rates
- Allowances
Employers are expected to perform regular reconciliations rather than assume salaries automatically satisfy award obligations.
- Time and attendance records
Payroll compliance now extends beyond payslips.
https://www.fairwork.gov.au/pay-and-wages/paying-wages/record-keeping
Inspectors increasingly review:
- Timesheets
- Rosters
- Clock-in/clock-out records
- Payroll audit trails
- Approval workflows
Poor record keeping can itself lead to penalties, even where employees have been paid correctly.
- Payroll governance
The FWO expects organisations to have formal governance over payroll, including:
- Payroll audits
- Internal controls
- Executive oversight
- Risk reporting
- Board visibility for major payroll risks
- Processes to identify and correct underpayments quickly
Large employers are expected to demonstrate continuous payroll assurance rather than relying on reactive fixes.
- Large-scale payroll remediation
Where employers identify historical underpayments, the FWO expects them to:
- Self-report where appropriate
- Calculate back-pay accurately
- Include interest and superannuation
- Notify affected employees
- Improve payroll systems to prevent recurrence
Recent enforceable undertakings with universities, charities and other employers show the FWO continues to monitor remediation programs closely.
- Vulnerable workers and high-risk industries
The FWO continues targeted compliance campaigns in sectors with historically high levels of non-compliance, including:
- Hospitality
- Retail
- Fast food
- Agriculture
- Cleaning
- Security
- Construction
- Universities
- Care services
- Franchise businesses
- Small businesses employing migrant workers
- Payroll systems and technology
The FWO increasingly expects employers to:
- Validate payroll software configuration
- Test award calculations after system updates
- Review payroll rules after enterprise agreement changes
- Conduct regular payroll health checks
Simply relying on payroll software is not considered a defence if employees are underpaid.
What employers should be doing in 2026
To reduce compliance risk, employers should:
- Conduct regular payroll compliance audits.
- Review Modern Award classifications and pay rules.
- Reconcile annualised salaries against actual hours worked.
- Maintain accurate time and attendance records.
- Test payroll system configurations after legislative or award changes.
- Monitor underpayment risks and remediate issues promptly.
- Ensure payroll compliance is overseen by senior management and, for larger organisations, reported to the board.
Overall, the FWO’s 2026 approach reflects a shift from responding to complaints toward proactive enforcement of systemic payroll compliance, with a strong expectation that employers have robust governance, accurate payroll systems, and effective controls to prevent underpayments before they occur
