Navigating Payroll Remediation: Key Obligations and Guidance from the Fair Work Ombudsman

A particularly challenging area, recently highlighted by Federal Court judgments involving major retailers like Woolworths and Coles, is the remediation of underpayments for employees on annualised wage agreements. These high-profile cases have underscored a critical compliance failure: employers assuming a high annual salary automatically covers all award-based entitlements. The courts have reinforced that such agreements must be subject to rigorous, ongoing reconciliation to ensure the annual wage is sufficient to cover all overtime, penalty rates, allowances, and leave loading that an employee would have earned under the relevant modern award for the hours they actually worked. This serves as a stark warning that setting and forgetting an annualised salary is a significant compliance risk.

In the context of a Payroll Remediation Program (PRP), this means employers cannot simply look at the total salary paid. Instead, they must deconstruct the annualised wage and meticulously reconcile it against the award entitlements for each individual pay period. This aligns with the FWO's expectation that "Each pay period must stand on its own," preventing employers from using a surplus from one week to offset a shortfall in another. For businesses undertaking a PRP, this requires robust data from time and attendance records to accurately calculate what was owed, reinforcing the need for both corrective measures to fix payroll systems and strong governance to prevent future failures

Payroll Remediation Program Guide

When an employer uncovers historical underpayments, the steps they take in response matter not only to the employees affected, but also to the Fair Work Ombudsman (the FWO). In underpayment matters, the FWO assesses not only what has occurred, but also how the business conducts itself in addressing the underpayment once it has been uncovered.

To support employers undertaking large-scale remediation efforts, the FWO released the Payroll Remediation Program Guide in April 2025 (the Guide). For employers, particularly those with complex operations structures, multiple awards or legacy payroll systems, the Guide sets a clear and detailed framework for designing and implementing remediation programs that are comprehensive, transparent and legally compliant. Compliance with the principles of the Guide may reduce the likelihood of enforcement action, provided the business cooperates fully with affected workers and with the FWO.

The Importance of the Guide

In past enforcement matters, the FWO has made it clear that it is not just the fact of underpayment that triggers litigation or compliance notices. What often elevates a matter is an employer’s poor conduct after the fact, such as failure to investigate, inadequate repayment practices, poor communication with staff, or delays in implementing preventative measures once issues have been identified.

The Guide is the clearest signal yet of what the FWO expects from employers who discover errors in their payroll systems and as such, following the Guide closely may significantly mitigate regulatory risk.

Core Components of an Effective Payroll Remediation Program

The Guide outlines seven key elements that every payroll remediation program (PRP) should include, which are explored in further detail below.

1. Designing the PRP

A properly scoped PRP begins with looking back at historical data to identify which employees have been affected and within which time periods. Employers should also ask why issues occurred in order to identify the historical and ongoing issues that require addressing. The FWO expects employers to review a minimum of six years of payroll data, even if the statutory limitation period for legal claims is six years.

Employers must justify the chosen review period. A period shorter than six years must be supported by clear reasons, such as lack of reliable records or unavailable witnesses. Conversely, relying solely on the statutory limitation period to define the scope is unlikely to satisfy the FWO unless additional contextual factors are considered, as the FWO has discussed “additional remediation” even outside the statutory limitation period. Employers should document all scoping decisions in a formal PRP project plan and note any legal or practical constraints to satisfy the FWO’s requirements.

The FWO also expects employers to engage with employees, unions, workplace consultation bodies and third parties, such as payroll technology providers and professional advisors, in this process.

The FWO expects governance structures that ensure transparency, consistency and control. Employers should assign clear roles, responsibilities, and escalation pathways. This includes creating a project team with payroll specialists, legal advisors, and employee representatives (where appropriate).

Effective governance also means actively monitoring risks and maintaining records of all decisions and methodologies—particularly where judgment calls are made on classification, award coverage or interpretive issues.

2. Methodology Issues

One of the most common causes of remediation failure is flawed methodology.

Key expectations from the FWO include:

• Transparent application of all relevant industrial instruments (including modern awards and enterprise agreements)

• Evidence-based classification of roles over time, supported by job descriptions, duties performed, and changes to positions

• Use of all available data sources, including time and attendance records, rosters, pay slips and employment contracts

Of particular importance is the FWO’s position that:

• Each pay period must stand on its own: Overpayments in one cannot be used to offset underpayments in another

• Over-compliance in one category (e.g. annual leave) does not negate underpayment in another (e.g. penalty rates)

While the FWO’s view on this has not yet been tested judicially, employers should adopt a conservative approach consistent with its guidance.

3. Communication

The FWO places significant weight on how employers engage with employees during the remediation process. Best practice involves a detailed communication plan that is:

• Delivered early in the process

• Tailored to the workforce (considering literacy, language, and access)

• Transparent about what happened, how it will be fixed, and what steps affected employees can take

This includes former employees, who must be given clear channels to update contact details or query their entitlements. Avoiding vague, defensive or overly legalistic language is essential to preserving trust.

An employer’s communications strategy should be legally reviewed to ensure that admissions are risk-managed, while still meeting the FWO’s transparency expectations.

4. Repayments

Employees should be placed in the position they would have been in had the underpayments not occurred. This includes:

• Prompt back payments

• Interest (not required by law but considered “good faith” by the FWO)

• Superannuation on unpaid amounts, where applicable

Payments must be calculated with precision, supported by detailed schedules showing all components (base pay, allowances, overtime, etc). Employers should also maintain a process for employees to raise concerns or dispute amounts, which should be promptly addressed.

5. Locating Former Employees

It is not enough to make a single attempt to reach former employees. The FWO expects “reasonable steps” based on the scale of the issue, the size of the business and the sums involved. This may include:

• Email, SMS and postal contact to the last known addresses

• Public notices or social media outreach

• Engagement of third-party tracing services for large or high-value cohorts

Efforts must be documented. If former employees cannot be found, businesses should consider holding funds in trust or following state-based unclaimed money processes.

6. Corrective measures

Perhaps the most critical component of any PRP is ensuring it doesn’t happen again. Employers must invest in durable compliance measures, including:

• Payroll system upgrades or audits

• Stronger data integrity protocols

• HR and payroll staff training

• Ongoing independent audits

Where long-term changes are not immediately possible, interim safeguards (e.g. manual checks, additional approvals) must be put in place to prevent further breaches.

7. Future compliance

Once a PRP has identified the causes of non-compliance, introduced measures to prevent further contraventions and rectified any underpayments, the FWO expects employers to consider what steps an employer can implement to avoid future breaches.

These measures include assurance and audit measures, culture and governance issues that may prevent compliance, systems and technology failures, and issues with people and processes that need addressing.

The Regulatory Lens: The Importance of Cooperation and Transparency

The FWO has repeatedly stressed that it will prioritise enforcement action in cases where employers:

• Delay investigation or remediation

• Fail to pay interest or provide adequate records

• Conceal the existence of underpayments

• Refuse to engage meaningfully with staff or the regulator

Conversely, employers who follow the Guide, consult effectively, and act transparently are more likely to resolve matters without civil penalty proceedings.

The content in this Article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. It should not be relied upon as such. You should seek legal or other professional advice before acting or relying on any of the content.

The solicitors at BlackBay Lawyers can provide specialised and detailed advice for employers and employees. If you require advice, please feel free to contact BlackBay Lawyers on (02) 8005 3077 or via www.blackbaylawyers.com.au  for a confidential discussion with one of our solicitors.