More than three-quarters of Australian organisations now use artificial intelligence to manage payroll compliance, according to new research examining responses to wage theft reforms.

The 2026 State of Payroll Compliance Report reveals 77% of employers deploy AI to detect compliance issues, track legislative changes and review contracts.

The most common application is monitoring payroll to detect compliance issues, used by 42% of organisations surveyed.

Another 57% plan to implement automated payroll review technology, reflecting growing recognition of technology's role in managing complex compliance requirements.

However, the report cautions that technology alone cannot ensure compliance without human oversight for interpretation and validation.

"AI has become an enabler in payroll compliance," the report states. "It can analyse large volumes of data faster and make sense of complexity at scale."

"But technology alone is not assurance," it continues. "The human layer which involves interpreting, validating, and applying judgment is what turns insight into confidence."

The findings follow January 2025 wage theft reforms that reshaped employer approaches to payroll accuracy and governance.

Almost nine in 10 organisations (89%) introduced new payroll compliance measures after the reforms, including staff training, audits and system improvements.

Despite heightened focus, challenges persist. Only 64% of organisations report full confidence in their payroll compliance, while 36% remain unsure they pay employees correctly.

The top compliance concern is interpreting employment instruments such as modern awards and enterprise agreements, cited by 43% of respondents.

System limitations handling unique or complex scenarios ranked second at 40%, followed by poor integration between systems.

Marcus Zeltzer, founder and managing director of Yellow Canary, which commissioned the research, said most payroll issues are unintentional.

"The most significant payroll issues are rarely intentional," Zeltzer said. "Instead, they are driven by the complexity of modern award interpretation and the limitations of payroll systems."

The report found organisations conducting regular audits show significantly higher confidence levels than those auditing only when issues arise.

Quarterly reviews are most common (35%), while only 5% conduct reactive audits. Organisations using reactive approaches report notably lower confidence.

Manual spreadsheet audits declined from 31% to 23% as employers shift toward technology-driven assurance methods.

Average spending on payroll compliance audits reached $272,000 in 2025, though organisations allocated $507,227 on average, suggesting budget under-utilisation.

Larger employers with 5,000-plus employees spent an average of $434,439, compared with $186,415 for organisations with 50-199 employees.

Looking ahead, one-third of organisations plan to strengthen all compliance areas collectively in 2026.

Payroll tax (22%) and awards/enterprise agreements (19%) emerged as the most pressing individual priorities for improvement.

The Fair Work Ombudsman recovered $358 million for over 249,000 underpaid workers in 2024-25, highlighting the scale of payroll errors.

"Payroll underpayments can trigger a snowball effect," the report warns. "One error can uncover misclassifications, award mistakes, super, leave and payroll tax issues."

The research was conducted by Lonergan Research between 20-24 October 2025, surveying 540 Australian business and payroll decision-makers from organisations with 50-plus employees.

https://www.yellowcanary.com.au/