A new survey by payroll tech firm Yellow Canary found that just 22% of Australian businesses have adopted proactive payroll compliance technology. Still, more may follow as they seek to reduce the legal and business risk of underpaying employees.
Intentional employee underpayments were made a criminal offense on Jan. 5 following amendments to Australia’s Fair Work legislation, with individuals and businesses now potentially liable. While unintentional mistakes will not attract criminal penalties, Yellow Canary estimates underpayments represent between 1% and 3% of total headcount costs across the market.
The Yellow Canary survey of 533 compliance leaders in Australia found the rising risk around underpayments is driving more tech buyers toward proactive payroll compliance tools:
- 23% plan to adopt technologies in the next one to two years.
- 21% of businesses plan to implement these tools in the next 12 months.
- 17% said they were satisfied with manual compliance processes.
- 15% were curious about more proactive payroll technologies but had no plans to implement them.
“The introduction of the Closing Loopholes Acts, including the criminalisation of wage theft, marks a pivotal moment for Australian businesses,” Yellow Canary Managing Director Marcus Zeltzer said in the report.
“Our research reveals while many businesses are making payroll compliance a top priority, a significant number are still relying on flawed manual processes or have not conducted thorough reviews.”
SEE: Best practices for maintaining payroll compliance
Payroll teams are concerned they are not paying staff correctly
Almost half (48%) of those surveyed by research house Lonegran Research on behalf of Yellow Canary said they had been making payroll compliance a top priority ahead of the Closing Loopholes law.
However, 93% of local businesses with at least 50 employees still said they had at least one area of concern regarding potential employee underpayments in their organisation as the law came into force. Additionally, 17% expressed uncertainty about paying their staff correctly, while 19% suspect an underpayment issue may exist but have not confirmed it.
Several key drivers of payroll underpayment concerns were identified in the research report:
- 39% of respondents had concerns with staying current with legislation and obligations, demonstrating the complexity of remaining compliant in an evolving regulatory environment.
- 37% cited concerns around a lack of internal communication, noting that collaboration and information flow across departments reduce errors and inconsistencies in payroll processes.
A further 32% had concerns with time and resource constraints for payroll audits and historical reviews. Meanwhile, the reliability of payroll software in ensuring compliance was a concern for 31%, as was aligning rostering or time and attendance processes, which are often managed through system integrations.
SEE: 8 best payroll software for Australian Businesses
Only 7% of respondents said there are no areas of concern regarding potential underpayments. However, Yellow Canary said it was unclear if this reflected genuine assurance or lack of awareness, given it had found some non-compliance in 100% of clients in its work reviewing $70 billion in wages.
Proactive compliance and AI could improve payroll scorecard
Australia has experienced widespread problems with underpayments — affecting large private and public sector organisations — in many cases due to Australia’s complex system of payment awards.
The Yellow Canary report found many employers still rely on “less reliable” methods:
- 31% still conduct manual audits with spreadsheets.
- 32% review pay code configurations.
- 37% use sampling for payroll checks.
SEE: A step-by-step guide to doing payroll (the right way)
“While businesses may feel confident in their manual methods, these processes are flawed, prone to error, limited in scalability, and unable to keep up with the increasing complexity of compliance,” the report said.
Adopting proactive payroll compliance technologies is expected to help reduce the problem by replacing more manual review processes with regular tech-supported audits of workforce payroll data.
The incorporation of AI could support these efforts — but some businesses remain skeptical
More than half (59%) of Australian businesses with 50 or more employees are optimistic about the potential of introducing artificial intelligence into their payroll compliance frameworks in the future.
AI is not yet commonly used in payroll compliance in Australia, but the report said that the evolution of technology shows “great potential for being integrated into existing processes.”
For instance, AI can be used to analyse payroll data patterns, and identify anomalies — such as incorrect pay codes, underpaid employees, or misclassifications — to provide payroll teams with real-time insights.
However, 27% of respondents remain either skeptical of AI’s ability to improve payroll compliance or believe AI will introduce more challenges and complicate payroll processes in the future.
“Businesses must navigate challenges such as integration issues, data privacy concerns, and resistance to change before widespread adoption [of AI],” the report said.
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