SCHADS Award Payroll Compliance: A Practical Guide for Australian Payroll Managers

The SCHADS Award covers workers across social services, community care, disability support, aged care and crisis accommodation. Getting payroll right means managing multiple classification levels, pay points, penalty rates and allowances across different employment streams.

Recent Federal Court decisions clarified that employers must calculate award entitlements separately for each pay period. The September 2025 Woolworths ruling confirmed that overpayments in one fortnight cannot offset underpayments in another.

This guide covers classification structures, pay point progression rules, allowances, penalty rates and system requirements for SCHADS payroll compliance in 2025.

How SCHADS Pay Rates and Classifications Work

The SCHADS Award increased minimum wages by 3.5% from 1 July 2025, applying from the first full pay period starting on or after that date.

The Four Employee Groups

The award divides workers into four primary groups:

1. Social and Community Services employees (8 levels)
2. Crisis Accommodation employees (4 levels)
3. Family Day Care employees
4. Home Care employees

Your employee’s group depends on the work they actually perform, not just the type of organisation or clients served.

Base Rates vs Actual Rates

Level 1 Pay Point 1 for Social and Community Services employees sits at $999.40 per week ($26.30 per hour) as the base rate. Many employees receive substantially more due to the Equal Remuneration Order.

The ERO applies uplifts ranging from 123% to 145% for Social and Community Services employees at Levels 2-8 and Crisis Accommodation employees at Levels 1-4. These ERO-enhanced rates become the ordinary rate of pay for all purposes, including penalty rates and overtime calculations.

A Level 2 Pay Point 1 employee’s actual rate is $1,314.13 per week ($34.58 per hour) after the 123% ERO uplift, not the $1,068.40 base rate. Failing to apply ERO rates underpays employees on every hour worked.

Understanding Classification Levels

Classification determines pay rates. Getting it wrong creates systematic underpayment that multiplies across every pay period.

Social and Community Services Employee Levels

• Level 1: Work under close direction performing routine clerical and support activities. Receive substantial on-the-job training. Do not undertake social or welfare work.
• Level 2: Hold Certificate III or IV qualifications. Perform work related to those certificates. Exercise moderate independent judgment while providing direct support to clients.
• Level 3: Hold Associate Diplomas, Advanced Certificates, or three to four-year degrees. Apply professional knowledge and skills while undertaking assessments and developing support plans.
• Level 4: Apply knowledge gained through tertiary qualifications. Work in specific disciplines and exercise responsibility for various functions within their work area.
• Level 8: Exercise managerial responsibility and undertake work of significant scope and complexity. Typically possess specialist qualifications with substantial postgraduate experience.

The Cost of Misclassification

A single employee incorrectly classified at Level 2 instead of Level 3 faces underpayment of approximately $154-$261 per week after ERO uplifts. Over a year, that’s $8,000-$13,500 before considering compounding effects on superannuation, leave loading and penalty rate calculations.

Pay Point Progression Rules

Progression through pay points within a classification level is not automatic except for Level 1 Social and Community Services employees.

What Eligible Actually Means

After 12 months continuous service, employees become eligible for progression to the next pay point. Eligible means they may be considered, not that they automatically receive it.

Actual progression requires the employer’s discretion based on demonstrated competency, satisfactory performance over 12 months, and acquisition and use of new or enhanced skills. The Federal Circuit Court ruling in Thompson v Arbias Limited [2020] confirmed this interpretation.

The Level 1 Exception

Level 1 Social and Community Services employees progressing from Pay Point 1 to Pay Point 2 operate differently. This progression occurs automatically after 12 months of industry experience (12 months of relevant experience gained over the previous 3 years). For part-time employees, this equates to 1,976 hours.

Level 1 employees who perform a full range of domestic duties under general supervision must start directly at Pay Point 2. Full range means cleaning, food service and helping residents with personal care tasks.

Qualification-Based Starting Points

• Level 2 with Certificate IV: Must start at Pay Point 2, not Pay Point 1.
• Level 3 with three-year degree: Must start on at least Pay Point 3.
• Level 3 with four-year degree: Must start on at least Pay Point 4.

Crisis Accommodation Level 1 graduates with four-year degrees: Must start at Pay Point 2 minimum.

After initial placement, progression to subsequent pay points follows the general eligibility rules requiring 12 months continuous service, demonstrated competency, satisfactory performance and skill acquisition.

Documentation Requirements

Clause 13.2 of the SCHADS Award requires employers to advise employees in writing of their classification upon commencement and provide written notification of any subsequent changes. Failure to provide this written notification can result in infringement notices and penalties.

Create a classification decision register documenting the rationale for each employee’s placement, including specific qualifications, experience and responsibilities. Review annually as duties evolve.

Implement clear policies outlining how progression decisions will be assessed, what constitutes satisfactory performance and demonstrated competency, and ensure decisions are exercised fairly and rationally.

Allowances Under the SCHADS Award

First Aid Allowance

Employees who hold current first aid certificates and are required to perform first aid duties receive $19.76 per week for full-time work, or $0.52 per hour for part-time and casual employees. Pro-rate the allowance for part-time employees based on ordinary hours.

Sleepover Allowances

The current sleepover allowance sits at $57.99 per sleepover. This calculates as approximately 4.9% of the standard rate for an 8-hour period.

Legal uncertainty follows the July 2025 Jats Joint Pty Ltd v Fair Work Ombudsman Federal Court decision. Fair Work Ombudsman filed a notice of appeal on 11 August 2025. Until the appeal resolves, maintain detailed records of all sleepover shifts and document the specific interpretation you’re applying.

If an employee performs any work during the sleepover period, they must receive a minimum of 1 hour’s pay at overtime rates. If an employee works a shift immediately before or after a sleepover, that shift attracts a minimum 4-hour payment regardless of actual hours worked.

Broken Shift Allowances

When an employee works two distinct periods in a day separated by an unpaid break (excluding meal breaks), they receive $20.12 per shift (1.7% of the standard rate).

If the employer and employee agree in writing to three work periods with two unpaid breaks, the allowance increases to $26.63 per shift (2.25% of the standard rate).

These allowances apply regardless of total hours worked or break length. The entire broken shift must occur within a maximum 12-hour span. Hours beyond this span attract double time rates.

Penalty Rates and Overtime

All penalties apply to the relevant ordinary hourly rate, which for ERO-affected employees means the ERO-enhanced rate.

Shift Penalties

• Afternoon shifts (8pm-midnight Monday-Friday): 12.5% loading
• Night shifts (finishing after midnight or commencing before 6am Monday-Friday): 15% loading
• Saturday: 150% of ordinary rate
• Sunday: 200% of ordinary rate
• Public holidays: 250% for full-time/part-time employees, 275% for casual employees

Overtime Calculations

For work beyond 38 ordinary hours per week or outside the span of ordinary hours (typically 6am-8pm Monday-Friday), employees receive 150% for the first 2 hours and 200% thereafter. Sunday overtime attracts 200% for all hours.

When overtime coincides with penalty periods, apply whichever rate is more favourable to the employee.

Minimum Engagement Provisions

Social and Community Services employees (except those performing disability services work) must receive payment for a minimum of 3 hours for each engagement.

Disability services workers and home care employees have a 2-hour minimum engagement.

When broken shifts occur, each separate work period must independently satisfy the minimum engagement requirement.

Record Keeping and STP2 Reporting

Section 557C of the Fair Work Act reverses the burden of proof if you fail to keep proper records. If records are inadequate, you must disprove employee allegations of underpayment.

What Records You Must Keep

Maintain comprehensive payroll records for 7 years minimum. Records must be readily accessible, in English and legible.

For each employee: names, ABN, commencement date, employment type, classification level with written notification, pay rate, gross and net amounts, all deductions, details of every payment including bonuses, loadings, penalty rates and allowances.

For hours worked: show when the employee started and finished overtime, not just totals. For irregular hours, show all hours worked.

The Critical Distinction

Roster data or clock-in/clock-out records do not satisfy record-keeping obligations.

Payroll records must specifically state which penalty rates applied, which allowances were paid and how each entitlement was calculated. A record showing an employee worked 9am to 10pm Saturday is insufficient. Compliant records must show: 9am-8pm at 150% Saturday penalty calculating to $X, 8pm-10pm at 12.5% afternoon shift loading calculating to $Y, total Saturday penalties $Z.

STP Phase 2 Requirements

Single Touch Payroll Phase 2 requires disaggregating payments into categories: gross (ordinary time earnings only), paid leave, overtime, bonuses, allowances (nine separate categories) and salary sacrifice.

• Task allowances (Type KN): First aid, higher duties, on-call, sleepover, shift (afternoon and night), broken shift, leading hand
• Laundry allowances (Type LD): Cleaning of compulsory uniforms and protective clothing
• Cents per kilometre allowances (Type CD): Vehicle allowances for business travel between client locations
• Overtime meal allowances (Type MD): Only when exceeding ATO reasonable amounts
• Other allowances (Type OD): H1 for home office, U1 for uniform purchase, V1 for private vehicle flat-rate, T1 for public transport

Common STP2 Reporting Errors

Many employers incorrectly select “not reportable” for allowances that must be reported, particularly sleepover and broken shift allowances.

Misusing the “Other Allowances (OD)” category as a catch-all instead of correctly classifying as Task Allowances (KN).

Failing to disaggregate all-purpose allowances built into base rates. When employment agreements specify compound rates, STP2 requires separate reporting of each component.

Managing Annualised Salary Arrangements

The September 2025 Woolworths decision requires employers to ensure annualised salaries adequately cover all entitlements in each individual pay period, not just annually.

You need payroll systems that simultaneously process salary payments while calculating what the employee would have received under standard award provisions for actual hours worked that period. The system must flag any period where salary falls short.

If Continuing Annualised Arrangements

Review all employment contracts to ensure set-off clauses reference pay-period reconciliation. Implement pay-period-by-pay-period reconciliation processes.

Maintain detailed timesheets despite salary arrangements. Conduct formal reconciliation at least annually and upon termination with documented calculations. Pay any shortfall within 14 days.

System Requirements for SCHADS Compliance

General-purpose accounting software payroll modules lack built-in SCHADS award interpretation. Updating hundreds of pay classifications manually can consume 96+ staff hours and introduces substantial error risk.

Essential System Capabilities

• Pay point progression tracking: Flag employees becoming eligible after 12 months, with workflow for managerial review and documentation
• Classification management: Support multiple streams, multiple pay points, written notification generation with 7-year retention
• Penalty rate calculations: Automatically apply correct multipliers based on precise shift timing, handle shifts spanning midnight
• Allowance automation: Trigger first aid allowances based on qualification assignment, detect broken shifts, manage sleepover allowances, apply minimum engagement payments
• Compliance validation: Prevent shifts with less than 10-hour breaks, flag shifts exceeding ordinary hours

Integration Benefits

Integration between rostering, time and attendance, payroll and accounting systems eliminates manual data entry errors and enables real-time compliance checking. Shift creation includes immediate award compliance validation. Seamless sync ensures all penalties and allowances correctly calculated.

Annual Wage Review Implementation

In June, review the Fair Work Commission Annual Wage Review decision (typically announced early June for 1 July implementation). Calculate or obtain new pay rate tables. Schedule system updates before the first full pay period after 1 July.

Validate new rates against Fair Work Ombudsman pay guides. Verify all penalty rate calculations use updated base rates. Confirm allowances correctly calculated.

Communicate rate changes to payroll staff, managers and employees before the first affected pay run. Document the entire process for audit purposes.

Classification Audits

Conduct classification audits annually or whenever employee duties change substantially.

Create detailed position descriptions explicitly linked to SCHADS classification descriptors. Document classification decisions recording why each employee is placed at their level and pay point, including specific qualifications, experience and responsibilities. Retain for 7 years.

Review annually comparing actual duties against position descriptions to identify classification drift. When employees take on higher duties temporarily, apply higher duties pay for periods exceeding relevant thresholds (generally 5 consecutive working days, though home care employees receive higher duties after 2 hours).

For borderline cases, involve HR advisory services or employment lawyers. Retain written advice demonstrating due diligence.

What Enforcement Actually Looks Like

Fair Work Ombudsman’s 2023-24 Annual Report shows $473 million recovered for workers. Court-ordered penalties reached $21.2 million, the largest in FWO’s 15-year history.

World Vision Australia back-paid $6+ million plus interest and superannuation in June 2024. Open Minds Australia Limited paid $4.2 million in May 2024. Australian Unity Limited paid $6.8+ million in December 2022 for SCHADS Award underpayments.

These organisations all had professional HR and payroll functions.

Criminal Wage Theft Provisions

Intentional underpayment constitutes a criminal offence punishable by up to 10 years imprisonment for individuals since January 2025. Financial penalties reach the greater of 3 times the underpayment amount, $1.565 million, or $7.825 million for companies.

The Voluntary Small Business Wage Compliance Code provides that small businesses demonstrating compliance will not face criminal prosecution. Self-reporting before investigation can provide protection from criminal liability.

Civil Penalties and Back-Payments

Standard contraventions attract up to $18,780 per contravention for individuals and $93,900 for small business employers. Large corporate employers face penalties five times higher. Serious contraventions (committed with knowledge or recklessness) attract significantly higher penalties.

Back-payment obligations extend back 6 years with interest accruing on unpaid wages. Superannuation obligations compound the issue.

All enforceable undertakings appear on the Fair Work Ombudsman website indefinitely. For NDIS providers, compliance issues may affect provider registration status.

Building Sustainable Compliance

Three Immediate Actions

1. Conduct classification audits comparing all employees’ actual duties against SCHADS classification descriptors. Focus on ERO rate application for Social and Community Services Levels 2-8 and Crisis Accommodation Levels 1-4, where base rate errors compound across all hours worked.
2. Implement pay-period-by-pay-period reconciliation for any annualised salary arrangements with documented calculations. If reconciliation proves unworkable, convert to hours-based payment.
3. Upgrade payroll systems to specialist platforms with pre-built SCHADS award interpretation that provide automated compliance checking, real-time award updates and audit-ready documentation.

Self-Reporting Mechanisms

Early identification and voluntary disclosure to Fair Work Ombudsman, coupled with immediate remediation, can mean the difference between enforceable undertakings and criminal prosecution.

Establish clear internal escalation procedures for potential compliance issues. Define authority for engaging external advisors and making FWO contact.

Next Steps

Payroll Experts conducts comprehensive SCHADS compliance audits examining classification accuracy, pay point progression documentation, allowance application, penalty rate calculations and record-keeping adequacy.

We identify gaps, quantify exposure and provide detailed remediation plans with implementation support. Our audits examine 100% of employee types across all classifications.

Book a compliance audit to assess your current SCHADS payroll processes and identify areas requiring attention before they become enforcement actions.