Payroll Under Pressure: Why Mid-Sized SMEs Struggle to Keep Pay Accurate
A year after wage theft reforms came into effect, Australian businesses have increased their focus on payroll compliance, but confidence in pay accuracy remains fragile. Mid-sized organisations face the greatest strain as workforce complexity outpaces internal resources.
Recent findings show that mid-sized organisations with 200 to 999 employees have led the response to wage theft reforms. More than half increased staff training and awareness, while 44 percent conducted payroll and compliance reviews and 42 percent invested in better system integration.
Despite this activity, confidence has not kept pace. More than one third of Australian employers say they are not confident they pay employees correctly. Confidence remains relatively stable among smaller employers at around 64 to 65 percent, but it drops to 58 percent among mid-sized organisations, where modern awards, enterprise agreements, and varied work patterns introduce greater risk.
“The new wage theft laws have rightly focused attention on intentional underpayments, but what is just as important, and far more common, are the unintentional ones,” said Marcus Zeltzer, Founder and Managing Director of Yellow Canary.
“They come from complex systems, changing work patterns, and human error, not intent. The real challenge for employers is building the visibility and governance needed to prevent both.”
One payroll error rarely stands alone
Payroll underpayments rarely occur in isolation. A single error often points to broader issues across the employee lifecycle, including misclassification, award interpretation, superannuation, leave entitlements, and payroll tax.
“Payroll underpayments can trigger a snowball effect,” Zeltzer said. “One error can uncover misclassifications, award mistakes, super, leave, and payroll tax issues, escalating risk and complexity if organisations do not manage them upfront.”
This compounding risk explains why payroll has become a focal point for boards, regulators, and advisers. What starts as an operational issue can quickly develop into a governance and financial risk.
Mid-sized employers feel the pressure first
Payroll grows more complex as organisations expand. More than half of mid-sized employers say they struggle to interpret modern awards and enterprise agreements, putting payroll accuracy under pressure.
In organisations with 50 to 199 employees, responsibility for payroll compliance most often sits with the CEO or Managing Director at 31 percent, followed by the Head of Payroll at 35 percent. Payroll involves multiple teams, from leadership to HR and finance, making clear processes and communication essential.
“When multiple teams share responsibility for payroll, small errors can go unnoticed and grow over time. That is why clear processes and regular checks are so important,” Zeltzer said.
Proactive audits reduce risk before problems emerge
Regular payroll audits play a critical role in preventing issues from escalating, yet Australian employers take very different approaches.
Quarterly reviews are now the most common audit cadence, used by 35 percent of organisations. At the other end of the spectrum, 7 percent of employers do not run regular audits at all. Of those, 71 percent only review payroll after a problem has already emerged.
“Payroll audits must be scheduled regularly. Waiting until an issue arises is too late,” Zeltzer said. “The more frequently organisations review payroll, the sooner they catch errors, reduce risk, and ensure employees receive the correct pay.”
Visibility builds confidence, not intent
While wage theft reforms have driven action, the research shows that activity alone does not guarantee confidence. Persistent challenges in interpreting employment instruments and ongoing uncertainty around pay accuracy indicate many organisations still need to strengthen key areas within their people, processes, and platforms.
For SMEs, the path forward centres on visibility. Employers gain confidence when they can see payroll data clearly, test outcomes across the full employee lifecycle, and explain results with certainty.
“Confidence does not come from assuming payroll is right,” Zeltzer said. “It comes from visibility, transparency, and the ability to validate outcomes.”
Payroll compliance is no longer a back-office task. For Australian SMEs, growing complexity and regulatory pressure make it a critical test of governance and a path to ongoing, confident payroll.
About Yellow Canary
Yellow Canary is the provider and developer of Australia’s leading payroll audit and compliance platform, empowering businesses to take control of their workforce compliance obligations.
By leveraging advanced automation and Artificial Intelligence (AI), their platform supports proactive management of employee payments, entitlements, superannuation, and long service leave, offering both historical and ongoing compliance reviews to navigate the complexities of the industrial relations landscape.
Download the 2026 State of Payroll Compliance report here.
