Every year on 1 July, the Fair Work Commission's annual wage review comes into effect — and every year, thousands of Australian small businesses discover they've been underpaying staff without realising it. For 2026, the Commission increased minimum pay rates across all Modern Awards by 3.5%. For employers already operating on thin margins, a missed update creates liability that compounds backward through every payroll run since July 1.
This checklist covers the eight areas where Australian SMBs most commonly fall short of Fair Work obligations — from award determination and base rates through to record-keeping and leave entitlements.
1. Confirm which Modern Award applies
Australia has 122 Modern Awards covering different industries and occupations. The first compliance question is always: which award applies to each of your employees?
Many businesses in multi-discipline industries are covered by more than one award. A restaurant might employ kitchen hands under the Hospitality Award, delivery drivers under the Road Transport Award, and administration staff under the Clerks Award — all at the same ABN.
Checklist items:
- Review the award name and classification for every employee in your payroll
- Confirm classifications match actual job duties, not just job titles
- Check whether any employees may have been reclassified by changes to award schedules (some awards restructured classifications in 2024–2026)
- If uncertain, use the Fair Work Award Finder or seek an industrial relations advisory
2. Apply the 2026 minimum rates correctly
The 3.5% increase effective 1 July 2026 applies to all classification levels within each award. The increase doesn't automatically flow through to payroll systems — you need to check that your software has been updated or that you've manually adjusted rate tables.
Common issues:
- Payroll software that requires manual rate updates (most mid-market systems)
- Enterprise agreements that were negotiated years ago and whose base rates have now fallen below the award floor
- Employees on individual contracts where the "all-in" hourly rate was correct in 2024 but no longer covers the higher 2026 minimum plus applicable loadings
Checklist items:
- Pull the current minimum rate for each classification level from the Fair Work Commission website or your payroll software's updated rate tables
- Compare against what you're actually paying each employee
- Check that enterprise agreement base rates still sit above the award floor after the increase
- Verify "all-in" or loaded-rate contracts still comply when you break out base rate, casual loading, and any applicable loadings
3. Apply penalty rates and loadings correctly
Minimum base rates are only the starting point. The correct payment for any given shift depends on when it was worked, whether the employee is casual or permanent, and whether any special conditions applied (overtime, public holidays, etc.).
Key loadings to verify:
- Casual loading: Generally 25% on top of the ordinary rate (varies by award)
- Saturday loading: Typically 125–150% of ordinary rate, depending on award and time of day
- Sunday loading: Most commonly 150–175% (varies significantly by award)
- Public holiday loading: Usually 225–250% — the base rate plus a 125–150% loading
- Evening loadings: Many awards apply evening penalty rates from 7pm or 9pm — check your award schedule
- Overtime: Most awards pay 150% for the first 2–3 hours overtime, then 200% thereafter
Checklist items:
- For each timesheet row, identify the correct loading based on day and time
- Confirm public holidays are coded correctly in your system (check against the current state/territory public holiday schedule)
- Review overtime thresholds — most awards set daily or weekly triggers, whichever occurs first
4. Verify allowances are being paid
Modern Awards include a range of allowances that are frequently missed in payroll. These aren't optional extras — they're minimum entitlements.
Common allowances that appear across many awards:
- Meal allowance: Payable when an employee works overtime beyond a certain number of hours (typically 2 hours) without prior notice
- Uniform/laundry allowance: If you require a specific uniform that the employee must maintain
- Tool allowance: In trades, if employees supply their own tools
- Travel/vehicle allowance: For employees required to use their own vehicle for work travel
- First aid allowance: Where an employee holds a first aid certificate and is required to administer it
- Leading hand/supervisory allowance: For employees supervising a specified number of other employees
Checklist items:
- Review the allowances schedule in your applicable award(s)
- Identify which employees trigger allowance conditions in a typical week
- Confirm your payroll system codes these as separate allowance line items (not absorbed into a higher flat rate without explicit agreement)
5. Check your casual conversion obligations
Since August 2024, the Fair Work Legislation Amendment (Closing Loopholes) Act has imposed stronger casual conversion obligations on employers. A casual employee who has worked a regular pattern for 6 months (12 months for small businesses) must be offered conversion to permanent employment — in writing, within 21 days of the relevant anniversary.
Checklist items:
- Identify casual employees approaching or past their 6/12-month anniversary
- Review their roster for regular and systematic patterns (same days, similar hours)
- If conversion applies, issue the written offer within the 21-day window
- Document any employee decisions to remain casual in writing
6. Confirm record-keeping obligations are met
Fair Work inspectors can request payroll records going back seven years. Incomplete or inaccurate records are themselves a compliance breach — separate from any underlying wage shortfall.
Records you must hold for each employee:
- Full name, employment type, commencement date, award/classification
- Pay rate and basis of calculation for each pay period
- Hours worked each day, including start/finish times and breaks
- All loadings, penalty rates, and allowances paid
- Leave balances and usage
- Superannuation contributions (amount, fund, and dates paid)
Checklist items:
- Confirm timesheets or time-tracking records show start/finish times, not just total hours
- Verify pay slips are issued within one working day of payment and include all required line items
- Ensure records for departed employees are retained for seven years from their departure date
7. Review superannuation contributions
The Superannuation Guarantee rate increased to 12% from 1 July 2025, and remains at 12% for 2025–26. Super must be paid quarterly at minimum, but many employers with tight cash flow inadvertently fall into arrears.
Checklist items:
- Confirm the super rate applied in your payroll system is 12%
- Check that contributions are being paid quarterly at minimum (not just deducted from pay)
- Verify that all eligible workers are covered — not just permanent employees; most casuals and many contractors are entitled to SG contributions
- Review your SGC lodgements to the ATO if you believe any payments may have been late or underpaid
8. Assess leave entitlements and accruals
Leave errors are one of the most common findings in Fair Work Ombudsman audits. Common issues include incorrect accrual rates, annual leave being paid out at ordinary time (instead of the higher of ordinary time or average weekly earnings where applicable), and personal leave not tracking correctly for part-time employees.
Checklist items:
- Annual leave: 4 weeks per year for full-time (pro-rata for part-time), plus 17.5% leave loading for most awards
- Personal/carer's leave: 10 days per year for full-time (pro-rata for part-time) — not reset to zero when the employee rolls over to a new year
- Long service leave: Varies by state — confirm you're applying the correct state legislation for each employee's location
- Parental leave: Confirm paid and unpaid parental leave entitlements are correctly coded and tracked
When to run a formal compliance audit
This checklist is a first-pass review. If any item reveals a potential gap — misclassifications, missed allowances, loading errors — the next step is a full backpay calculation to quantify the underpayment exposure. The Fair Work Ombudsman has published guidance that voluntary disclosure of underpayment and prompt remediation are treated more favourably than breaches discovered through inspection or complaint.
For businesses with more than 15 employees or complex award coverage, uploading your timesheet data through a compliance validator lets you identify specific rows that breach award minimums before an inspector does — and gives you a defensible record of your due diligence.