Employment law changes that affect payroll: what's in force, and what's next

Most of the Closing Loopholes changes that businesses spent 2024 preparing for are now in force. The useful question in 2026 is no longer what is coming. It is whether your payroll actually reflects what already commenced, and which of the remaining changes are worth preparing for now.

This is written from the payroll side. Some of what follows is properly HR territory and we say so where it is. The rest lands directly in the pay run.

What is already in force

Intentional underpayment is a criminal offence

Since 1 January 2025, intentionally underpaying an employee is a crime, not just a civil contravention. Penalties reach $7.825 million for a company, and up to ten years' imprisonment for an individual.

The threshold is intent. An honest miscalculation, a misread award or a payroll system left on last year's rates is an underpayment to be back-paid, not a criminal offence. What the change does is remove the middle ground where a business knew about a shortfall and left it there.

Small business employers - fewer than 15 employees - have a specific protection. The Fair Work Ombudsman cannot refer a small business for criminal prosecution if it is satisfied the business complied with the Voluntary Small Business Wage Compliance Code in relation to the underpayment. The Code is short, and it is worth having actually worked through rather than vaguely resembling: it asks for evidence that you checked the right award, kept records, and acted when something looked wrong.

Casual employment: the definition and the employee choice pathway

Commenced 26 August 2024 for employers with 15 or more employees, and 26 August 2025 for small business employers.

A casual employee is now defined by the absence of a firm advance commitment to ongoing work, assessed on the real substance of the relationship rather than the label on the contract. Separately, eligible casuals can give written notice asking to move to full-time or part-time employment under the employee choice pathway.

The payroll consequence is bigger than the paperwork suggests. Conversion removes the casual loading, starts leave accruing, and changes how the employee is reported through Single Touch Payroll. It is a change to the employee's pay template, super and leave settings - not a form that gets filed.

Right to disconnect

Same two commencement dates. Employees can refuse to monitor or respond to work contact outside working hours where that refusal is reasonable.

This is an HR and policy matter rather than a payroll one, with one exception worth flagging: if someone is genuinely expected to be contactable outside hours, whether they are compensated for that availability is part of what makes a refusal reasonable or unreasonable - and compensation is a payroll question.

Employee or contractor

From 26 August 2024, whether a worker is an employee or an independent contractor is decided on the whole of the relationship, not just the words of the contract. Contractors earning above the contractor high income threshold can opt out.

This is the change with the longest tail. A worker reclassified as an employee is owed superannuation, leave and PAYG withholding - retrospectively, for as long as the arrangement ran. The arrangements to look at are the ones that have quietly drifted: a contractor who works for you and nobody else, on set hours, using your equipment, invoicing the same amount every month.

Payday super

From 1 July 2026, superannuation has to be paid at the same time as wages rather than quarterly. We covered that separately, because it changes cash flow and payment mechanics more than employment law.

What is coming

Non-compete clauses

Announced in the 2025-26 Federal Budget: a ban on non-compete clauses for workers earning below the Fair Work Act high income threshold, which covers roughly nine in ten employees under the Act. Legislation is expected during 2026, with the ban taking effect from 2027.

Related proposals covering no-poach agreements and wage-fixing arrangements between businesses are under Treasury consultation, with competition law penalties attached rather than employment law ones.

None of this touches a pay run. It matters now only if you are drafting employment contracts this year - a non-compete written today for a worker under the threshold may not be worth much by the time you need it.

The thing all of these have in common

Classification. Casual or permanent. Employee or contractor. Which award, which classification level within it.

Every change above turns on getting a classification right, and a classification error is the one that compounds. It is not a single wrong number - it is the wrong rate, the wrong leave accrual and the wrong super, every pay run, until somebody checks. That is also why underpayments are usually found in bulk rather than one at a time.

Three checks worth doing this year

1. Every casual who has worked a regular pattern for six months or more. Are they still genuinely casual under the current definition, or is the label doing work the arrangement does not support?
2. Every contractor who invoices you regularly. Run the relationship, not the contract, against the whole-of-relationship test.
3. Every employee sitting close to their award minimum after the 1 July increase. Award rates rose 4.75% this year, and above-award pay does not automatically stay above award. The current rates are here.

Where we stop

We do bookkeeping and payroll, not industrial relations. What we can do is tell you what a classification change does to a pay run, back-pay a shortfall correctly with super recalculated on it, and make sure STP reporting follows the change rather than lagging it.

Award interpretation disputes, right-to-disconnect policies and contract drafting belong with an HR specialist or an employment lawyer. We will tell you when you need one rather than guess - and we can point you at someone.

If payroll compliance is the part of this you would rather not carry: that is what our payroll team does.

General information only, current as at the date above, and not legal advice on your own circumstances. Confirm current obligations with the Fair Work Ombudsman or a qualified adviser.