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The Importance of Payroll Accuracy

Payroll

27 June 2025 (Last updated 3 Sept 2025)

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Australia has some of the most complicated pay structures in the world and 121 different Modern Awards. Calculating employee pay correctly can be challenging, especially if you have full-time, part-time, and casual employees or apprentices at different stages of their training or multiple awards applying across your workforce. You also need to be fully aware of overtime rates, penalty rates, loadings, and allowances.  

Wrong data in, wrong pay out

As an employer you’re ultimately responsible for ensuring your employees are paid correctly, on time, and they receive their full entitlements and benefits.  

Whether you use an automated or manual payroll system, or outsource your payroll to a specialist service provider, you’re responsible for any mistakes made when calculating the pay of your employees. You also need to be aware of the various employee and payroll tax rates, and compulsory superannuation payments.  

Paying employees incorrectly could result in incurring severe penalties by the ATO or Fair Work Ombudsman. You've heard of cases where businesses had to backpay workers or be hit with massive fines. In just one year (2023), the Fair Work Ombudsman recovered over $500 million in unpaid wages.

How Peninsula can help

If you’re unsure of the various entitlements, current awards for your industry, or the different pay rates that may apply to your employees, our team can offer pay rate advice and insights for your business and industry.  

Although Peninsula does not provide payroll services or offer any financial advice, we can help you better understand your wage obligations to help you stay compliant and avoid costly mistakes. 

Wage theft vs payroll error

Not paying employees is a serious issue but there is a big difference between genuine payroll errors and wage theft.

When a business underpays employees, avoids entitlements, and dodges superannuation, it is a deliberate choice to avoid paying wages. This is illegal and called wage theft in Australia.

Payroll error is something that happens one-off or occasionally due to technology or human errors and misunderstandings.

Some of the key differences between wage theft and payroll are:

  • wage theft is ongoing and can be happening for months or years, payroll happens once or occasional

  • there is an attempt by the business to fix the payroll error while wage theft is covered up or ignored by the business

Several businesses have often claimed they made a mistake while committing wage theft. At the end of it, intent makes a difference. Businesses and employers knowingly engage in wage theft while payroll errors are unintentional. As of 1 January 2025, wage theft is a criminal offence in Australia.

Common payroll errors

Underpayments

Common payroll errors include underpaying employees. Under the Fair Work Act 2009, employers must rectify underpayments as soon as they are identified.

Overpayments

Overpayments happen when an employer mistakenly believes an employee is entitled to the pay, or because of a payroll error. Fixing an overpayment requires agreement of the employee. If the employee agrees to repay the money, a written agreement should be made which sets out the reason for the overpayment and amount of money overpaid, and the way repayments will be made.

Steps to manage payroll errors

Once a payroll error has been made, employers can take steps to rectify the error:

  • Identify the error, the cause, and the accurate amount owed to the employee

  • Communicate with the employee clearly about the error, mention all details including timeline and suggest solutions

  • Once the employee has agreed to the solution, make a written agreement setting out relevant terms and conditions

  • If you are dealing with complex payroll issues, consult a professional

Grow your business with Peninsula

Peninsula offers comprehensive HR and WHS services for businesses including resources, advice, and software. Get access to a 24/7 advice line when you become a Peninsula client. Call us on 1300750491 to learn more.

This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

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Payroll

Gross pay

When an employee receives a pay slip, it will normally include a figure indicating their ‘gross pay’. Gross pay refers to an employee’s total taxable income for a pay period before any deductions are made. Income tax, Medicare and Social Security contributions, as well as health insurance, superannuation, and any other deductions are not accounted for when an employee’s gross pay is calculated.  What is the difference between gross pay and net pay?  As well as gross pay, an employee’s ‘net pay’ will also appear on their slip. While gross pay shows the amount the employee has earned before any deductions, net pay reflects the amount the employee will receive after deductions are made.  Net pay is almost always a lower figure, reflecting the amount that will be paid into the employee’s bank account. For this reason, net pay is often referred to as ‘take home pay’.   Examples of gross pay and net pay  If an employee’s annual salary is $120,000, then their yearly gross pay is $120,000 and their monthly gross pay is $10,000.   Supposing the same employee paid $29,476 in income tax (calculated based on the current tax rate for this salary), as well as a further $6,524 in superannuation and other contributions, their total deductions will be $35,000.   After these deductions are made from the employee’s gross pay ($120,00 minus $35,000), they will be left with a net pay of $85,000.     What deductions are taken from gross pay?  Mandatory income tax is normally the largest deduction taken from an employee’s gross pay. Australian employers are responsible for deducting tax and sending it to the Australian Taxation Office (ATO).  Anybody who is self-employed needs to calculate their own tax return, set the money aside and pay it directly to the ATO.  It’s also compulsory that employers deduct 2% from an employee’s gross pay for Medicare.  Further deductions may also be agreed on between an employer and employee, including superannuation and health insurance contributions.   Are employers allowed to make deductions?   Employers are legally obligated to make income tax and Medicare deductions from an employee’s pay. Beyond this, an employer can only deduct money if:  The employee agrees in writing and it’s principally for their benefit The employee has outstanding court ordered payments The deduction is allowed by a law or by the Fair Work Commission The deduction is allowed under the employee’s Modern Award The deduction is allowed under the employee’s registered agreement, which the employee has signed and agreed to An employee’s written agreement must be genuine, and they can’t be forced by an employer into agreeing to any deductions.  It’s important to note that deductions should be shown on the employee’s pay slip, as well as their time and wages records.  Calculating gross pay  If you’re an employee and you want to calculate your gross pay, you can use the information included in your latest pay slip. The calculation you need to make will vary depending on whether you are paid an annual salary or hourly wage.  How to calculate gross pay for an annual salary  The salary recorded in your employment contract will be your official annual gross pay. You can also figure this out by referring to a pay slip. If your pay slip shows a gross monthly pay of $6,000, then you simply multiply this amount by the twelve months of the year (6,000 X 12 = 72,000). Your gross annual pay is $72,000.  Similarly, your annual salary divided by twelve gives you your monthly gross pay. If you receive any bonuses, financial benefits or commissions, you’ll need to add these too. If you earn $72,000 as a base annual salary, but you’re also paid $5,000 in bonuses for the year, your gross annual pay is $77,000. How to calculate gross pay for an hourly wage   If you earn an hourly rate of pay and you’re unsure of how many hours you’ll work annually, it’s easiest to wait until the end of the year and calculate it then.   If you work set hours each week, you can calculate your gross annual pay yourself in advance. If you work 20 hours a week at an hourly rate $20, your weekly gross pay is $400, your monthly gross pay is $1,600, and your gross annual pay is $19,200.   Remember – if you take any unpaid days off in the year, you’ll need to deduct the pay from your gross pay. Similarly, if you receive a pay rise or take on any additional shifts, you’ll need to recalculate the rest of the year with the new pay rate or increased number of hours included.   What is gross salary?  Gross salary refers to the total amount an employer regularly pays to an employee, normally expressed an annual sum that is divided into fortnightly or monthly payments. When an employee starts a new job or receives a pay rise, their gross salary will be agreed upon and laid out in an employment contract. Much like gross pay, gross salary is an employee’s income before taxes and any other contributions are deducted. Net salary refers to an employee’s take home salary after deductions are made. Importance of gross salary As an employer, it’s vital you have an accurate understanding of each employee’s gross salary. Gross salary is used to calculate the percentage of an employee’s pay you should withhold for taxes, while it can also be used to calculate an employee’s redundancy pay entitlements. Businesses also rely on gross salary information when budgeting and financial planning. By knowing their total labor costs, employers can allocate financial resources effectively and make informed decisions about expenses, investments, and future growth opportunities. As an employee, the gross salary an employer offers will be crucial when deciding whether or not to accept a job offer. Gross salary is also important to employees because it is used by creditors when they review loan applications. What is gross income? Gross income includes an employee’s gross salary, as well as any: Tips Commissions Bonuses Financial benefits Dividends Capital gains Pension payments Gross annual income refers to all of the above, combined into a yearly sum. If you’re an Australian employer struggling with wages and pay, call our advice line on 1300750491 to get all your questions answered. This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

Payroll

Apprentice pay

For small business owners or employers in Australia, hiring apprentices can be a great way to get younger talent. It also benefits apprentices as they can develop skills and gain experience to boost their professional careers. Apprentices get access to apprentice wages, certificates, and professional recognition. Understanding apprentice pay can be complicated for business owners. In this guide, we will discuss who qualifies as an apprentice, Australian apprentice wages, and knowing different types of apprentices e.g. mature-age apprentices and mature-age apprenticeship wage. Apprenticeship An apprenticeship is a structured training arrangement of usually three- or four-years duration. The training involves practical experience at a company with on-the-job training and off-the-job training with a Registered Training Organisation (RTO). An apprentice is an employee hired to learn a particular trade or profession while completing studies to become a qualified tradesperson. Some examples of trades where apprentices are common are electricians, plumbers, and hairdressers. An apprentice must have a training contract with their employer to qualify for apprentice pay rates or wages. The training contract sets out terms and conditions relating to training and supervision. The apprentice must also attend a registered training organisation (RTO), such as a TAFE or trade school for assessment and additional off-the- job-training. The training contract and a training plan prepared by the RTO must be approved and registered with an appropriate State or Territory Training Authority (STA).  As the training contract usually only focuses on training obligations, it might be useful to have a separate employment contract to address employment-specific matters. Apprentices get the same entitlements as other employees, such as annual leave, sick leave, public holidays, and breaks. Special apprentice minimum pay and conditions may apply, and employers must understand the specific rules of their industry award, as well as the training contract and employment contract. Australian apprentice wages Paying an apprentice may not be as simple as paying other employees. This is because the rate of pay is based on several different factors and considerations, which may include: Industry award Occupation award Age Terms and conditions of the registered training agreement Length/duration of the apprenticeship (e.g. three- or four-year apprenticeship) Prior learning (i.e. how much training the apprentice has already completed) Schooling (whether or not the employee is still attending school) Qualification type e.g. Certificate III Whether or not the employee completed year 12 and when How these factors impact the apprentice’s wage will ultimately be decided by the provisions of the relevant industry award or instrument. Mature age apprenticeship wages Also known as an adult apprentice, a mature-age apprentice is anyone 21 years or older. Hiring an experienced adult apprentice can be good for business. To compensate for any prior experience an adult apprentice may bring, the minimum award pay rates is usually higher than that of their juniors. Discussions about the adult apprentice wage, availability, and special conditions can be carried out between the apprentice and employer with help from an authorised training provider. Pay rates for traineeships The pay and conditions for most trainees are decided by the Miscellaneous Award. They also receive other entitlements from the occupation or industry award that applies to them. These entitlements may include overtime, penalty rates, and allowances. Trainees fall into three categories: Full-time trainee: A full-time trainee is employed under a training contract and will work 38 hours per week.  Part-time trainee: A traineeship can sometimes be completed part-time. The employee and employer need to agree on the duration of the part-time training contract. This must be checked with the relevant state or territory training authority.  School-based trainee: A school-based traineeship is done while someone is still in high school. This means an employee can stay in high school and simultaneously train for a work-related qualification.  Pay increases during an apprenticeship During an apprenticeship, the apprentice will naturally learn new skills and become more competent. When an apprentice progresses to the next level of their apprenticeship, they are usually entitled to increased minimum pay rates. Modes of progression will usually be outlined in the applicable industrial instrument. In most cases, progression is: Time-based – that is, the apprentice moves up to the next pay level after they have worked a certain amount of time (usually 12 months); and/or Competency-based – when the apprentice has attained the required skills to advance to the next stage of their apprenticeship (this can occur before the completion of the above period). How an apprentice completes the training depends on the employer, as long as the requirements of the training contract and the terms of the training agreement are met. Progress is dependent upon the assessment of competency by the relevant RTO. Completion of apprenticeship Once the apprentice has completed their training and earned their trade certificate, their minimum pay rate must be raised beyond that of an apprentice to that for a trade-qualified employee. The applicable minimum wage will be determined by the relevant occupation or industry award. Understand wages for Australian apprentices, minimum pay rates and how they apply to your business, with Peninsula's tailored advice and documents. Call us on 1300761935 to learn more. This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

Payroll

Know your back pay obligations

Back pay is the payment of monies owed to an employee that were not paid by an employer in a previous pay period.   For example, if an employee’s wages were underpaid due to a payroll error or oversight, the payment of the outstanding amount in a future pay period is referred to as back payment.  Why do employees get back pay?  An honest day’s work should always be fairly paid. However, employees entitled to back pay will have been underpaid, or completely unpaid, by a current or previous employer. Common reasons for back pay include:   Payroll and accounting errors  Unpaid overtime, leave, bonuses or commission  Minimum wage violations  Do employers have to make back payments?  In short, absolutely. Employers must issue back pay whenever they underpay an employee’s wages. It makes no difference if the underpayment was intentional or not, the employer must pay the full amount of back pay owed.  If an employer does not make back payments, they may be in violation of wages and pay laws provided by the Fair Work Act 2009. This could lead to a legal case and financial penalties.   Avoiding underpayments An employer may not realise they have underpaid wages until the employee raises the matter, or the Fair Work Ombudsman performs an audit. Here are a few practical tips that will help you avoid underpayment:   ✔ Be sure you are paying your employees correctly by regularly reviewing their wages against the relevant industrial instrument and/or the national minimum wage.   ✔ Make sure you keep up to date with any pay increases or award changes. For example, the annual minimum wage increases usually come into effect from the first full pay period on or after 1 July each year.  ✔ Ensure all your workers are employed under the correct award and at the appropriate classification level for the job they do.   ✔ Remember the employee’s classification level or pay rate may change, or they may be entitled to receive loadings or allowances as they gain more experience, complete further training, or are promoted to higher levels of seniority.   ✔ It’s also important to consider that a junior or apprentice pay rate may increase for different reasons, including age, time served and competency.    Calculating back pay There are five steps to follow when accurately calculating back pay:  Figure out when the employee was underpaid and how long for. This is called the underpayment period.  Next, check the employee’s wages records for that period to establish how much the employee was actually paid. This is the gross amount the employee was paid for the underpayment period before tax.  Work out how much the affected employee should have been paid in wages for the underpayment period.   Check any other entitlements owing for the period separately, and check whether you need to pay any additional tax or superannuation.   Combine the real wages and all paid entitlements owed. Then subtract the total amount paid to the employee for the underpayment period – the difference is the amount of back pay owed.  Finally, be sure to discuss the underpayment with the employee. Explain what led to the underpayment, what you have done to fix it, how you have calculated the amount of back pay, and when the employee will receive it.  Pay slips and record keeping  As part of their wages and pay obligations, employers should keep accurate payroll records, and give all employees pay slips documenting:   The pay period  The gross and net amount paid   The number of hours worked (if an hourly pay rate applies)  Penalty and overtime payments  Loadings, allowances or other entitlements    Any deductions for that period   Additionally, the Fair Work Act 2009 also demands that employers keep wage and time records for at least 7 years.  Get wages and pay advice you can trust If you need trustworthy advice about wages and pay, our free advice line is available to all Australian business owners. Call 1300750491 today to get all your questions answered.  This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

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