Why Payroll Compliance is now a Top Tier concern for Risk and Compliance leaders

Payroll Compliance Risk: Why It’s Now a Top Tier Concern for Risk and Compliance Leaders

Until recently, payroll compliance was rarely viewed as a top-tier enterprise risk. It sat somewhere between Human Resources and Finance, with little board-level attention, unless a crisis emerged. But over the past few years, that’s changed dramatically.

High-profile underpayment scandals, increased enforcement by the Fair Work Ombudsman, and the criminalisation of wage theft in 2025 have rapidly shifted perceptions. Today, payroll compliance has become a top-tier risk, one that now sits firmly within the remit of Risk and Compliance Executives and Risk and Audit Committees.

Why Payroll Has Become a Top-Tier Risk

Payroll is one of the few business processes that touches every employee and every dollar of labour cost. That makes it inherently risky. Combine that with complex Modern Awards, enterprise agreements, allowances, penalty rates, and the introduction of STP Phase 2 reporting obligations, and the risk multiplies.

At its core, payroll compliance risk is the risk that an employer is not meeting its legal obligations under the Fair Work Act, NES, superannuation laws, and industrial instruments. When errors occur, they can lead to wage underpayments, ATO penalties, legal exposure, and reputational damage. In many cases, they’re not detected until months or even years after the fact, when remediation costs are far higher.

The Role of Risk and Compliance Leaders

For Risk and Compliance leaders, the shift of payroll into the enterprise risk register requires a change in how it’s monitored, audited, and reported. It’s no longer sufficient to rely on payroll teams to manage compliance in isolation. Instead, payroll should be treated with the same level of rigour applied to financial reporting or cyber risk.

A Head of Risk or Compliance is now expected to oversee how payroll risks are identified and treated. This includes ensuring award interpretation logic is validated, payroll system configuration aligns with industrial instruments, and real-time data is used to surface exceptions before employees are paid.

Perhaps most critically, these leaders must provide assurance to the board. That includes tracking key risk indicators, coordinating independent audits or reviews, and escalating systemic failures before they result in regulatory action or brand damage.

What to Monitor and Report

Effective payroll compliance reporting relies on visibility across multiple layers. Leaders should be asking questions like:

• Are we confident that award classifications are correct?
• Is our payroll engine configured accurately for overtime, allowances, and loadings?
• Do we have audit trails for manual overrides and pay changes?
• Are we identifying patterns in underpayments or misconfigurations?
• Are STP and superannuation obligations being met in full?

The ability to answer these questions with confidence and evidence is fast becoming an expectation of the board and executive teams.

Risk Matrix Positioning

From a risk matrix perspective, payroll compliance now sits high across several categories. Operational risk is elevated due to the manual nature of time and attendance processes, data overrides, and interpretation complexity. Compliance risk is significant, with a rising number of enforcement actions and a clear regulatory focus. Financial and reputational risks also rank high, particularly for listed or consumer-facing businesses.

What used to be considered a Human Resources or Finance matter is now viewed as an enterprise exposure, one that must be proactively managed.

Proactive Over Reactive

The organisations best positioned to manage payroll risk aren’t waiting for an audit or a letter from the regulator. They’re moving toward real-time payroll audits, validating entitlements before employees are paid, and using raw data rather than assumptions to ensure compliance.

The question is no longer whether payroll compliance risk belongs in the enterprise risk register. It’s how quickly an organisation can embed it, govern it, and manage it like the top-tier risk it truly is.