With minimum wages set to rise from next month, HR and business leaders are urged to act fast to avoid costly payroll errors.

Businesses need to take immediate action following the Fair Work Commission’s decision to lift the national minimum wage by 3.5 per cent – a change that could have serious financial and reputational consequences for unprepared businesses.

From 1 July 2025, the national minimum wage will increase to $24.95 per hour or $948 per week for full-time workers. This equates to an additional $1,670 per year for those working a 38-hour work week.

While the increase aims to support lower-paid Australians amid rising living costs (currently approximately a fifth of Australian employees are paid at a minimum award rate), it adds another layer of complexity for HR and payroll teams already grappling with compliance obligations.

Industries with high numbers of award-reliant or casual workers are expected to feel the greatest impact. These include:

• Accommodation and food services
• Retail trade
• Health care and social assistance
• Administrative and support services.

These sectors typically employ workers on minimum wage, many of whom are young, part-time or casual. Even a small underpayment can have a big impact on their financial wellbeing – and on employer brand.

Compliance warning for employers

Craig Rollinson, CEO of wage compliance firm Vertruen, says the tight timeline between the announcement and implementation date means employers must act fast to ensure they’re ready.

“Non-compliance, even if unintentional, can result in significant back payments, penalties and, in some cases, legal action,” says Rollinson. “A missed pay rise or incorrect classification might seem minor, but it can quickly escalate into a major issue.”

In the 2023-24 financial year, the Fair Work Ombudsman recovered $473 million in unpaid wages for nearly 160,000 workers – with $333 million of that sum coming from large employers, he adds.

While big-name brands often make headlines, Rollinson warns that small and medium businesses are just as vulnerable.

“No one is immune. If you don’t have full confidence in your systems or past processes, now is the time to seek help – before the regulator comes knocking.”

In some states, repeated or deliberate underpayments may even constitute wage theft, which is now a criminal offence carrying the potential for prosecution. 

While most employers aren’t deliberately underpaying employees, systemic issues left unaddressed – or failure to act on known risks – can still trigger serious consequences. 

The Fair Work Ombudsman has made it clear that ignorance is not a defence.

“A missed pay rise or incorrect classification might seem minor, but it can quickly escalate into a major issue.” – Craig Rollinson, CEO, Vertruen

HR teams must take this moment as an opportunity to review, remediate and rebuild confidence in their payroll practices.

Beyond compliance, there’s also a reputational risk that’s harder to quantify but equally damaging. High-profile wage underpayment scandals have shown how quickly trust can erode – not just with employees, but with customers, investors and regulators. 

“Mistakes in payroll aren’t always deliberate, but they can erode employee trust very quickly.”

In an age of heightened transparency and social media visibility, being seen to do the right thing on pay is as much a brand issue as it is a legal one.

Read HRM’s article ‘HR’s role in responding to underpayments’.

Practical steps for HR and business leaders

Before 1 July, HR practitioners should inform employees affected by the changes and specify when the wage increase will be reflected in their pay, says Rollinson.  

“Businesses should then begin preparing their payroll systems to accommodate the upcoming wage increase and ensure payroll teams clearly understand which employees will be affected. 

“In the longer term, minimum wage adjustments need to be integrated into annual salary reviews for all staff. This approach helps organisations stay competitive in the market and retain valuable talent, as the costs of replacing high performers who leave for higher pay elsewhere can be significant.

“It’s also important to review whether employees are classified under the correct award to ensure compliance and fair pay.” 

Next, look out for any glaring red flags that could signal future issues.

“Employee queries are often the first indication of underlying issues. When employees raise concerns about their pay, it’s important to investigate promptly and comprehensively to determine whether an underpayment is isolated or systemic. 

“Another red flag is if employees’ wages are being calculated outside of the standard payroll system or if special workarounds are being used. These practices increase the risk of errors and underpayment, so should be scrutinised carefully.”

Looking at your competitors and the risks they’ve previously been exposed to can also reveal potential risk areas, says Rollinson.

“Businesses in similar industries [that] have recently faced wage compliance issues reported in the media… should act as a trigger for a payroll and compliance review [in your own organisation] to identify potential risks.”

Don’t rest on your laurels

Finally, Rollinson says it’s important not to assume your business is already compliant.

“Many businesses fall into the trap of assuming they already pay above the award, but with minimum rates changing each year, it’s crucial to regularly review and ensure they continue to meet or exceed the current minimum wage under the relevant award. 

“By addressing these areas, HR teams can help ensure compliance, protect the organisation from financial and reputational damage and maintain employee trust.”

AHRI members can log into their member portal to access a webinar on HR’s role in preventing underpayments. Not yet a member? Sign up today for a range of  useful and relevant HR resources.