Payroll

10 common payroll mistakes small businesses make.

Avoid the costly errors that expose your business to penalties and disputes, and learn exactly how to prevent each one.

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Payroll seems straightforward until you do it, then you hit the minefield of awards, super rules, tax and reporting. The same mistakes appear repeatedly, costing businesses tens of thousands in back-payments, penalties and damaged relationships. Here are the most common, and how to avoid them.

1

Misclassifying employees as contractors

The single most expensive mistake. If the ATO or Fair Work decide a contractor should be an employee, you're liable for years of unpaid super, payroll tax and leave.

How to avoid it: Apply the ATO's decision tool for every worker. If in genuine doubt, err on the side of employee classification.
2

Incorrect award application

With 120+ modern awards, each with specific rates, allowances and penalties, applying the wrong one creates underpayment liability.

Real example: A hospitality business underpaid evening penalty rates for 3 years. The back-payment bill was $47,000 plus penalties.
How to avoid it: Get a payroll specialist to audit your award application annually, awards change.
3

Late or incorrect super payments

Super must be paid quarterly by deadline. Miss it by a day and you lose the deduction and face the Super Guarantee Charge with interest and penalties.

How to avoid it: Pay super at least 5 business days before the deadline, or pay with each pay run to remove the risk.
4

Failing to keep proper records

Fair Work requires 7 years of records: not just payslips but timesheets, leave records, super confirmations and award classifications.

How to avoid it: Use cloud-based payroll that automatically maintains and archives records.
5

Ignoring STP reporting obligations

Single Touch Payroll reporting is mandatory. Failing to report, or reporting incorrectly, triggers ATO investigations and penalties.

How to avoid it: Ensure your software is STP-enabled and report on or before each pay day.
6

Incorrect casual loading calculations

Casuals get a loading (typically 25%) in lieu of leave, but you still pay super and penalty rates on top.

How to avoid it: Calculate loading on the base rate, then apply penalties and allowances. Super is on total ordinary time earnings including loading.
7

Missing payroll tax thresholds

Once Australian payroll exceeds state thresholds (typically $650k-$1.25m), you must register. Missing it triggers backdated bills plus penalties.

How to avoid it: Monitor annual payroll monthly and register proactively at ~80% of the threshold.
8

Incorrect leave accrual

Leave accrues differently by employee type. Full and part-time accrue on ordinary hours, casuals don't, and loading varies by award.

How to avoid it: Use software that calculates accruals automatically by employee type and award.
9

Not updating rates when awards change

Award rates change annually (usually 1 July). Don't update and you underpay from day one of the new year.

How to avoid it: Subscribe to Fair Work notifications and update rates in the first week of July, or use managed payroll where experts do it.
10

Paying under award via salary

A salary doesn't exempt employees from award entitlements. If their salary doesn't cover award pay for hours worked (including overtime, penalties, allowances), you're underpaying.

How to avoid it: Calculate award earnings for actual hours worked; the salary must exceed it, or pay the difference.

Keep reading

Payroll compliance guide Managed payroll guide Understanding compliance

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