Finding an underpayment is uncomfortable, but it is exactly what an HR audit is designed to do.
What happens next matters. A business that responds quickly and properly is in a far stronger position than one that delays, guesses or quietly hopes the issue will go away.
1.Finding the Problem Does Not Resolve It
Once an underpayment has been identified, the business is no longer dealing with an unknown risk. It is dealing with a known one.
That changes the position. Each further pay cycle under the same settings adds to the amount owed. Delay also makes the correction harder: more employees leave, contact details go out of date and older records become more difficult to reconstruct.
The audit finding is the starting point, not the outcome. Whether the issue stems from award compliance gaps, payroll settings or historical decisions, the business now needs a clear plan to resolve it.
2.Working Out the Full Scope
Before anything can be corrected, the business needs an accurate picture of the problem.
An audit will often identify an error in a sample of records or for a particular group of employees. The next step is to establish how widely it applies. This usually means answering four questions:
- When did the error begin?
- Which employees, including former employees, were affected?
- Which entitlements were involved, such as base pay, penalty rates, allowances, leave or superannuation?
- Is the error still occurring?
Answering them usually means going back through timesheets, contracts and payroll records across the whole affected period. The answers are not always obvious. An incorrect classification may date back to when an employee’s role changed, not when they were hired. A payroll setting may have been wrong for every employee on a particular award since a system update.
Time also matters. Employees can generally pursue underpaid wages going back up to six years, so the review period should be broad enough to capture the full exposure rather than only recent pay cycles.
3.Correcting Payments and Communicating Clearly
Once the scope is known, affected employees should be repaid as promptly as possible. Calculations should be checked carefully, as an error in the back-payment itself creates a second problem.
Where superannuation was also affected, any shortfall needs to be addressed alongside wages. Leave balances may also need adjusting if accruals were calculated incorrectly.
How the correction is communicated deserves as much care as the calculation. Employees should be told clearly:
- What the error was
- How it affected them
- What they are being paid and how it was calculated
- What the business has done to prevent it happening again
Explanations should be factual and direct. Vague or overly defensive messages tend to raise more questions than they answer. Former employees should be contacted too, even where tracking them down takes extra effort.
4.Fixing What Caused the Error
Repaying employees addresses the past. It does not stop the same error from happening again.
Every underpayment has an underlying cause, and it is rarely just a one-off mistake. The table below shows how a finding often points to a deeper process issue.
| Audit finding | Underlying issue to address |
|---|---|
| Incorrect pay rates | Annual rate changes not applied in the payroll system |
| Wrong classification | No process for reviewing classifications when roles change |
| Missed allowances | Managers unaware of when allowances apply |
| Overtime errors | Timesheets approved without checking against award rules |
Addressing the cause may involve reconfiguring payroll software, introducing a classification review whenever duties change, training managers who approve timesheets, or changing who is responsible for checking payroll accuracy. Some businesses decide that outsourced payroll support offers more reliable oversight than managing award interpretation internally.
Once changes are in place, they should be tested. A follow-up check after several pay cycles confirms the fix is working, and building this into a regular audit schedule reduces the chance of new errors going unnoticed.
5.The Response Can Matter as Much as the Error
Regulators and employees do not only look at whether an underpayment occurred. They look at what the business did once it knew.
Since 1 January 2025, intentional underpayment of wages has been a criminal offence in Australia. Most underpayments are not intentional, but that distinction is much easier to demonstrate when a business can show it acted promptly once the problem came to light.
A business in a strong position can generally show that it:
- Investigated the issue properly once it was identified
- Repaid employees in full and without unnecessary delay
- Communicated openly with those affected
- Fixed the underlying cause
- Kept clear documentation of each step
Depending on the size and nature of the underpayment, a business may also need to consider whether to disclose the issue to the Fair Work Ombudsman. This is a decision where specialist advice is worthwhile.
A careful response also protects working relationships. Employees are more likely to accept that a genuine mistake occurred when the business takes responsibility for it. Treating the correction as part of a broader commitment to HR compliance helps rebuild that trust.
Final Thoughts
An audit that uncovers underpayments has done its job. The risk now lies in how the business responds.
Establishing the full scope, repaying employees accurately, communicating clearly and fixing the underlying cause turns an uncomfortable finding into an opportunity to strengthen payroll for the long term.
