Preparing Your Business for a Wage Audit: A Guide for Australian SMEs

As wage audits become more frequent and regulatory scrutiny intensifies, Australian small and medium-sized businesses are under growing pressure to be payroll-compliant. With the 2025 wage theft legislation now in effect, the risks of getting payroll wrong have never been higher.

This guide breaks down how SMEs can proactively prepare for a wage audit, including what records to keep, what common mistakes to avoid, and how to leverage tools and support to streamline the process. If you’re a business owner, HR manager, or payroll officer, this post will give you the confidence to approach your next audit with clarity — and stay on the right side of the law.

Why Prepare for a Wage Audit?

A wage audit is not something to fear — it’s an opportunity to ensure your business is paying employees fairly, meeting regulatory obligations, and protecting itself from future penalties. Wage audits can be triggered by:

• Internal quality control or board review
• Employee complaints or union inquiries
• Random Fair Work Ombudsman inspections
• Pre-acquisition due diligence or investor requirements
• Voluntary audits to reduce compliance risk

For SMEs, preparing for an audit in advance makes the process faster, less stressful, and more accurate.

What Does a Wage Audit Involve?

A typical wage audit reviews:

• Employee classifications (full-time, part-time, casual, contractor)
• Pay rates compared to relevant modern awards or enterprise agreements
• Overtime, penalty rates, and allowances
• Leave entitlements and loading
• Superannuation contributions
• Payslips and timesheet accuracy
• Recordkeeping practices

The goal is to verify that employees have been paid correctly and that payroll records comply with Fair Work and ATO standards.

Step-by-Step: How to Prepare for a Wage Audit

1. Review Employee Classifications

Misclassifying employees is one of the most common compliance mistakes in SMEs. Go through each worker and confirm:

• Are they casual, permanent part-time, or full-time?
• Are contractors truly contractors, or should they be classified as employees?
• Are their employment contracts up to date and consistent with their actual working arrangements?

2. Cross-Check Pay Against Awards

Determine which modern award(s) apply to your business and match each role to the correct award classification. Check:

• Base pay rates
• Overtime rules
• Weekend and public holiday penalties
• Allowances (e.g. travel, meal, uniform)
• Annual leave loading

Even small mismatches in award interpretation can result in significant back-pay liabilities.

3. Reconcile Time and Attendance Data

Ensure that actual hours worked (via rosters, timesheets, or digital logs) align with the hours paid. Look for discrepancies in:

• Unpaid overtime
• Breaks and rest periods
• Time rounding or incorrect shift entries

This is especially important for industries with variable or shift-based work patterns such as hospitality, retail, and health services.

4. Validate Superannuation Contributions

Verify that super has been paid:

• At the correct rate (currently 11% in 2025)
• On time (soon to be required at the same time as wages)
• On all eligible earnings, including bonuses and some allowances
• To the correct employee-nominated fund

Late or missed super payments are a frequent trigger for ATO audits and penalties.

5. Organise and Secure Payroll Records

Ensure your business maintains:

• Payslips for each employee
• Timesheets or attendance logs
• Employment contracts and award classifications
• Superannuation contribution receipts
• Leave balances and history

Under Fair Work rules, employers must keep records for at least 7 years. These records must be accessible and in English.

6. Conduct a Mini-Audit Internally or with a Trusted Partner

Before any official review, it’s smart to do a self-audit using internal tools or with the support of a wage compliance consultant. Many Australian SMEs now partner with platforms that automate this process — identifying gaps in award interpretation, pay rate mismatches, or missed entitlements.

Some trusted payroll providers also offer audit-ready reports to streamline your internal review and prepare documentation for external requests.

Common Pitfalls SMEs Should Avoid

• Relying on outdated awards or rates
• Assuming casual = flexible = low risk
• Failing to pay leave loading or allowances correctly
• Not backdating casual conversion or classification changes
• Poor recordkeeping or incomplete payroll data

These issues are all easily avoidable with the right preparation and tools.

The Role of Technology in Audit Readiness

Modern cloud payroll platforms are no longer just about “payslips and processing” — they are now full compliance tools. The best software solutions:

• Auto-update award rates and leave entitlements
• Track time and attendance with integrated apps
• Flag anomalies in pay runs
• Generate STP-compliant reports for the ATO
• Provide downloadable audit reports and history

Platforms like Employment Hero, Ascender, and ELMO now prioritise audit-readiness, making it easier for SMEs to stay compliant without hiring in-house payroll experts.

Final Thoughts: Be Audit-Ready, Not Audit-Frightened

As wage audits become more common across Australia, being proactive is your best defence. By taking simple but structured steps — like reviewing employee classifications, reconciling pay rates, and organising your records — you can make wage audits a routine part of business health, not a reactive panic.

In 2025, regulatory expectations are rising, but so are the tools available to help SMEs meet them. Use wage audits as a chance to strengthen your business, boost transparency, and create a culture of fairness and trust across your team.

‍Let’s get ahead of it. Book a walkthrough and see how Subi makes wage audits simple, smart, and legally robust.