Wage compliance: An emerging governance challenge for CFOs

The CFO Standard

AUTHOR

Wage compliance is no longer solely an operational responsibility of payroll and human resources. Continued regulatory and reputational scrutiny of underpayments, together with the introduction of criminal penalties for intentional underpayments from 1 January 2025, has elevated wage compliance into a significant governance issue for executives and boards.

Wage compliance has moved well beyond the payroll function. What was once viewed as an operational or administrative issue is now firmly on the agenda of boards, executives and regulators.

Recent legislative changes have significantly increased the consequences of getting it wrong. Intentional underpayment is now a criminal offence. Civil penalties have also increased and underpayments can be recovered over a six-year period, allowing payroll errors to compound long before they are detected. These developments have elevated wage compliance from a payroll concern to a definite governance and risk management issue.

There is also growing scrutiny of individual accountability. Courts have demonstrated a willingness to impose penalties on directors and executives who are involved in workplace law breaches, reinforcing the importance of active oversight and timely escalation if issues arise.

For CFOs, this creates a challenge.

Wage compliance is influenced by decisions made across HR, payroll, operations and management. Yet the consequences typically land at the executive and board level. As a result, CFOs are having to place more emphasis on wage compliance oversight and assurance.

An effective framework also helps to identify where wage compliance risks are most likely to arise. While every organisation is different, there are several common risk areas that CFOs should consider:

Who is responsible and accountable

How risks are identified and escalated

What evidence creates confidence that employees are being paid correctly.

Six wage compliance risks CFOs should be aware of

Treating payroll accuracy as wage compliance

A payroll system can process every pay run exactly as configured and still result in employees being paid incorrectly. If employee classifications, award coverage, penalty rates or other entitlement settings are wrong, the system may consistently apply an incorrect rule. As a result, payroll can appear accurate while employees are still being underpaid. Remember: garbage in – garbage out.

What CFOs can do: Seek evidence that key payroll assumptions are tested periodically and revisited when workforce changes occur.

Annualised salary arrangements drifting out of compliance

Annualised salary arrangements are often based on assumptions about hours worked, overtime and penalty rates. However, employee working patterns can change and make those assumptions outdated. A salary that once covered all entitlements may no longer be sufficient.

What CFOs can do: Request evidence that salary arrangements are routinely reviewed to confirm they continue to satisfy the entitlements generated by employees’ actual working patterns.

Workforce changes creating hidden compliance gaps

Workforce and operational changes can affect employee entitlements in ways that are not immediately obvious. Without a mechanism to assess these changes, compliance risks may emerge.

What CFOs can do: Confirm there is a process for assessing wage compliance impacts whenever roles, rostering practices, workforce structures or operating models change.

Poor quality payroll and timekeeping data

Even where entitlement rules are correct, compliance relies on accurate data. Incomplete time records, inconsistent data entry and manual workarounds can undermine payroll accuracy and make it difficult to demonstrate compliance if concerns arise.

What CFOs can do: Seek assurance that the controls underpinning payroll data are reliable and support both compliance and remediation activities.

Failing to keep pace with industrial obligations

Workplace obligations are not static. As awards, enterprise agreements and legislative requirements evolve, organisations can quickly fall out of compliance if those changes are not reflected in payroll arrangements.

What CFOs can do: Confirm clear accountability exists for identifying regulatory changes and assessing their impact before compliance issues emerge.

Weak governance and unclear accountability

Wage compliance responsibilities often span multiple functions. Without clear ownership, risks can remain undetected until they develop into significant compliance failures.

What CFOs can do: Establish ownership of wage compliance, including responsibility for oversight, escalation and reporting of emerging risks.

Wage compliance as an ESG issue

The consequences of wage non-compliance extend beyond financial remediation and regulatory scrutiny. Underpayments can also undermine employee trust and invite broader questions about an organisation's governance, culture and accountability.

This is one reason wage compliance is now being viewed through an ESG lens. While environmental commitments usually attract the most attention, investors and regulators are placing more emphasis on workforce practices and governance than they have in the past. Wage compliance sits at the intersection of both.

As the Australian Institute of Company Directors notes, payroll compliance is increasingly being recognised as a board-level responsibility rather than a purely operational matter. Organisations are expected to demonstrate that employee entitlements are managed with the same level of oversight applied to other significant risks.

Viewed through this lens, wage compliance is a reflection of both the organisation’s governance effectiveness and its commitment to meeting employee obligations.

Wage compliance requires ongoing oversight

As regulatory scrutiny increases and the consequences of non-compliance become more significant, wage compliance needs to be treated in the same way as any other significant risk is managed.

This does not mean CFOs need to understand every industrial instrument in detail. But they do need to ensure the organisation has the oversight and assurance mechanisms to identify issues early and demonstrate employees are being paid correctly.

RSM works closely with CFOs and their teams to assess, strengthen and monitor their wage compliance frameworks to enable greater confidence over payroll practices. This includes: