Australian small business owners are facing a new reality in payroll compliance and it’s not being driven by regulators alone.

In a sign of shifting power dynamics, workers are no longer passively accepting their pay packets – instead, they’re turning to artificial intelligence to scrutinise every penalty rate, classification and overtime calculation. They’re hoping to either detect a mistake or gain peace of mind, following a raft of underpayment scandals at some of the nation’s largest companies.

James True leads the Employment team at law firm LegalVision and has witnessed this detective work firsthand. “There’s a huge uptake in employees interrogating their own wages, largely helped by AI products,” he says. “They can put their payslips and timesheets into an AI model and ask whether they’ve been underpaid.”

An uptick in worker-led detection of wage breaches is reflected in anonymous tip-offs to the Fair Work Ombudsman, which jumped by 50 percent in 2024–25 to more than 25,000, with a third of complainants aged under 24. For SME owners, the focus is no longer on simply avoiding employment law mistakes, but on ensuring they find errors before they snowball.

The Complexity Trap Can Be Hard To Avoid

The sheer scale of Australia’s industrial relations system means it’s easy for any business to slip up, especially an SME where the owner often wears many hats. “It’s a very, very complicated sort of jurisdiction,” True explains. “There are over 120 modern awards.” 

He meets clients who have never heard of modern awards – which set minimum terms of employment for specific roles – despite them being in place for well over a decade. He also sees cases where an employer has searched for an award specific to their business type, found nothing and assumed they were exempt from award obligations. 

But while an industry award might not exist for a specific business, True points out awards can also apply to occupations. He points to the Clerical Employees Award as the primary example. “If you’re in a private business and you’ve got employees who are doing admin type duties where there’s no industry award that covers you… they’re probably going to get picked up by the Clerical Employees Award,” he says.

Another trap is the ‘one-award’ assumption, where businesses identify a single award that fits their primary trade and stop there. “You can have multiple awards applying,” says True. “It’s always a question of ‘Does it apply to both the employer and the employee?’ The employee’s particular duties are always relevant as well.”

Navigating this is difficult because there is no simple directory. “There’s nowhere to go beyond taking legal advice or HR advisory advice to find out what award applies. You can give the Fair Work Ombudsman a call, but they won’t give you any guarantees about whether the high-level answer they give you is binding in any way,” True warns.

Even the proactive step of paying above-award rates is not failsafe. Without specific contractual language, that extra money may not legally count toward entitlements like overtime or penalty rates. “You need some magic words in your employment contract that actually make sure that the payments you are making above award can be used to compensate the employee for all of those entitlements under the award,” True says.

It Pays To Catch Errors Before They Snowball

When billion-dollar corporations with dedicated compliance teams fail to meet payroll obligations, it shows how easily administrative oversights can escalate into major liabilities. Woolworths and Coles, Qantas, Commonwealth Bank, Rockpool and Melbourne University are among the large entities caught up in costly underpayment cases, with causes ranging from penalty rate miscalculations to systemic IT errors. 

For SMEs, the consequences can be determined by who discovers the error.

The least damaging scenario is when the business finds it first. Says James True:  “If you made a mistake in good faith, you can just rectify it, figure out what you were meant to pay and pay it back. Generally speaking, you can contain the issue just by doing that. You can resolve the headache by getting it right early.”

But if someone else picks up the mistake, the stakes are generally higher. “If you find out because the Fair Work Ombudsman uncovers it, or because employees have uncovered it, then you’re on the back foot and more likely to potentially face prosecution,” True warns.

Compounding the risk is the fact that payroll errors rarely stay small. Because mistakes are typically systemic, they can scale across the entire workforce over time. “Your payroll liability will be one of the bigger ones in your business, and these claims can snowball,” True explains. “Suddenly you’ve got 10, 20, 30, 40 employees all affected. You’re making a mistake every single month or week, however long the pay period is. That snowballs really, really, really quickly.”

Damage can extend beyond back-pay and penalties. “The Fair Work Ombudsman is very well resourced to prosecute you. There’s also a lot of reputational damage now from failing to comply with your obligations. These cases make the news in a way they didn’t even 10 or 15 years ago,” True says.

There Is Help At Hand To Boost Compliance

The compliance burden for Australian businesses extends beyond employment law. The cost of keeping up with Commonwealth regulations has ballooned to $160 billion, while looming policy changes like Payday Super may create further administrative and cashflow challenges for SMEs. Since legislative breaches often come with the threat of fines or legal action, True says legal advice offers the best protection. But he says proactive businesspeople can relieve some of the pressure on their own.

They should know their obligations first, True recommends, then use a targeted approach to keep the process manageable. “To limit the pain, you can do something like a spot audit. Take a small sample of employees and a small period of time and see whether you’re paying the right amounts.” This involves comparing employee duties to levels set out in awards to ensure they match.

He says the Fair Work Ombudsman has acknowledged the power of technology in this space, developing software to help businesses identify applicable awards, while payroll platforms can assist with day-to-day operations.

Managing Director of Talent Solutions at Employment Hero David Holland says technology has become an essential guardrail for SMEs, and has the dual benefit of boosting productivity. “For SME owners, managing 120 modern awards manually isn’t sustainable. Technology can automate award interpretation, map every hour worked against the latest rates and penalties in real time, and create a permanent audit trail that proves you’re meeting your obligations. The businesses getting it right use technology for the heavy lifting, but stay engaged enough to spot issues when circumstances don’t fit the standard playbook.”

Digital oversight may be the best defence for SMEs now that the days of a slap on the wrist for non-compliance are over. Says James True: “Historically, issues in relation to underpayments may not have been seen as business critical, but that’s just not the case anymore.”