With the financial year drawing to a close, compliance missteps can prove expensive – here's what to watch
As Australian businesses scramble to close out their financial year obligations, HR and payroll leaders are being urged to treat the end of financial year not as a routine exercise but as a critical compliance checkpoint – one where the cost of complacency can be significant.
With tax rules, superannuation obligations, and payroll legislation growing in complexity, the margin for error is shrinking. Experts warn that even small mistakes at EOFY can snowball into penalties, reputational damage, and unhappy employees.
Getting the basics right
Mark Chapman, director of tax communications at H&R Block Australia, says employers often underestimate the importance of correctly classifying and reporting expenses, particularly when it comes to fringe benefits and work-related costs.
"Expenses must be incurred in the course of earning assessable income and must not be private or domestic in nature," Chapman said.
"For employers, this translates into ensuring that reimbursements and allowances are correctly classified and reported, fringe benefits tax implications are considered where benefits are provided instead of salary, and adequate documentation and substantiation (receipts, logs, and records) are maintained."
Chapman noted that this is especially relevant in hybrid work environments, where the lines between personal and professional expense can blur. Any expense policies must align with ATO guidance, particularly for travel, home office, and vehicle use.
On the deductions front, Chapman said employers should ensure they are correctly capturing key expenses including employee salaries and superannuation contributions in line with Super Guarantee obligations, work-related travel, remote work support costs, depreciation of assets, training and professional development, and motor vehicle expenses.
"Being proactive in tracking and categorising these expenses can significantly improve tax outcomes and reduce audit risk," he said.
Common mistakes that trip up employers
Chapman identified misclassification of workers as one of the most consequential errors employers make – particularly treating employees as contractors when the legal test says otherwise. Other frequent pitfalls include poor record-keeping, incorrect handling of FBT for vehicles and entertainment, missing key deadlines for BAS and PAYG withholding, and overclaiming or underclaiming deductions.
"These errors can result in penalties, interest charges, and reputational damage if audited by the ATO," Chapman warned.
Payday super: the reform that changes everything
The superannuation compliance pressure on employers is about to intensify considerably. From 1 July 2026 – just weeks away – employers will be required to pay superannuation contributions within seven business days of each payday, a fundamental shift from the current quarterly model that could mean moving from four contributions a year to as many as 52.
The reform is being driven by a sobering reality: the ATO's Shane Moore, project director of superannuation and employer obligations, noted at the Dayforce Summit in Sydney that an estimated $6.2 billion in superannuation goes unpaid each year in Australia.
James Saxton, VP global product ambassador at Dayforce, warned that the changes would expose weaknesses that already exist in payroll operations, telling HRD: "It's really just going to expose problems you've already got."
He was also firm that payday super can no longer be treated as a payroll team's issue alone – finance, managers, and executives all need to understand the business-wide stakes.
"Compliance is now a business problem, not just a payroll problem," Saxton said.
For employers making a genuine effort to transition, Moore offered measured reassurance, saying the ATO would not pursue those who make mistakes while genuinely trying to comply – but that those who fail to shift payment frequency or resolve errors would face escalating scrutiny.
Why payroll professionals can't afford autopilot
The Australian Payroll Association (APA) echoed these concerns, cautioning that the familiarity of EOFY can breed complacency – and that is precisely when things go wrong.
"For many payroll professionals, EOFY can feel routine," the APA noted in guidance ahead of its 2026 End of Year Payroll Workshop. "The deadlines are familiar. The reporting cycle comes around every year. The process may look the same on the surface – but payroll itself is constantly evolving."
The APA points to an increasingly complex compliance landscape, with payroll professionals needing to stay across updates from the ATO, Fair Work, superannuation requirements, and state and territory legislation simultaneously.
"Even small payroll mistakes can result in underpayments, penalties, compliance breaches, employee dissatisfaction and reputational damage," the association said. "Staying informed is no longer optional: it is essential."
Key areas of focus for the new financial year include STP finalisation requirements, payroll reconciliations and balancing, award interpretation, and wage compliance – all areas that require active review rather than a set-and-forget approach.
For HR executives managing broader workforce strategy, the compliance pressure that EOFY places on payroll teams is a reminder of the growing need for integrated HR and finance functions – ones capable of responding to legislative change in real time.
