The Risk
Payroll appeared to be
working, audit delayed
The Trigger
Underpayments
surfaced
The Cost
From $6,850
To $23,200
The decision to defer the audit
A growing business with approximately 40 employees had expanded quickly. What had once been a relatively straightforward workforce had become more complex, with varied working arrangements, classification issues and multiple pay obligations to manage.
The business had been advised to undertake a payroll and Award compliance audit. The recommendation involved a targeted review of classifications, rates, allowances and payroll practices to assess whether existing arrangements aligned with Award obligations. The upfront investment was $6,850.
The payroll audit was deferred. Payroll appeared to be working, staff were being paid and the issue was not treated as an immediate priority. However, the problem had already started to build.
When the issue escalated
Over time, underpayments had occurred due to incorrect rates, classification issues and missed entitlements. The issue surfaced when a former employee began asking questions about their pay. That quickly led to broader scrutiny, further staff concerns and a reactive review of historical payroll practices.
Frustrated by the delay and the lack of clarity around the response, the former employee made a complaint to the Fair Work Ombudsman.
From there, the business was required to review historical records, obtain external advice, calculate back payments, communicate with affected employees and manage the risk of regulatory exposure.
Managers who should have been focused on operations, productivity and growth were instead pulled into a costly and time-consuming rectification process.
Estimated impact
$23,200 in back payments, advice and rectification costs
3–4 weeks of management and payroll time tied up in review and response
Difficult employee conversations and loss of trust in pay practices
Damage to morale and confidence in leadership
Reputational risk, particularly in a tight labour market
What could have been managed through a targeted audit became a reactive remediation process involving back payments, external advice, employee communication and regulatory exposure.
The takeaway
The cost of checking compliance is almost always lower than the cost of fixing non-compliance after the fact. The longer a payroll issue sits, the more expensive and disruptive it becomes to unwind.
“Payroll problems rarely start with one obvious mistake. They usually sit across a number of small assumptions that no one has tested properly. Classification, allowances, penalties, overtime, record-keeping and contract terms all connect. If one part is wrong, the issue can quietly compound across the workforce. The businesses that stay ahead of this are not waiting for an employee complaint to tell them there is a problem. They are checking the foundations while the issue is still manageable”
Peter Norrie
Senior Consultant, EWS