This article is general information for Australian employers and is not a substitute for advice about a particular employee, award interpretation or payroll issue. If the award coverage or calculation is unclear, obtain advice before the next pay run.

Employers covered by the Aged Care Award or SCHADS Award need to update their vehicle allowance process. From the first full pay period commencing on or after 1 September 2026, the temporary vehicle allowance increases from $1.01 to $1.05 per kilometre. The increase applies for six months and ends on 28 February 2027.

For the official announcement, see the Fair Work Ombudsman vehicle allowance update. Employers should also review the Fair Work Commission award news and the relevant decision before finalising their process.

What is the vehicle allowance increase?

When does the new vehicle allowance rate apply?

The new rate applies from the first full pay period commencing on or after 1 September 2026. That rule means the implementation date depends on the employer’s pay cycle. It is not always correct to change every payment made on 1 September.

Document the decision. Keep a short payroll note stating the pay-cycle dates, the date the new rate was activated and the source checked. This creates a useful audit trail if an employee later queries why one pay run used $1.01/km and the next used $1.05/km.

Which employers should review their payroll?

The most obvious businesses are residential aged care providers, home care providers, disability services providers and community services organisations covered by the relevant awards. However, award coverage is not determined only by the industry name. Review the actual business operations, employee duties and award classifications.

Start with payroll reports for vehicle, motor vehicle or travel allowances. Then compare the list with managers’ knowledge of employees who drive between clients, attend appointments or transport clients. Some eligible payments may be entered manually, so a payroll-only search may miss them.

Fair Work Centre’s Modern Awards compliance guidance can help employers create a repeatable review process. For broader payroll controls, use the payroll compliance guide and keep the business’s award interpretation notes with its HR documents and workplace policies.

Five steps to implement the temporary rate

1. Confirm award coverage

Check whether the affected roles are covered by the Aged Care Award or SCHADS Award and identify the clause that creates the vehicle allowance entitlement. Do not rely on a job title alone.

2. Identify qualifying travel

Confirm when employees are required to use their own vehicle and how kilometres are recorded. Make sure managers understand the difference between ordinary commuting and work-related travel covered by the award.

3. Calculate the first affected pay period

Write down the first full pay period commencing on or after 1 September 2026 for each payroll group. If different teams have different cycles, do the calculation separately.

4. Update and test payroll

Change the configured rate to $1.05/km, run a test calculation and check that the allowance flows to the correct payroll code and payslip description. Compare the output with a manual calculation before approval.

5. Tell employees and diarise the end date

Send a short written notice explaining the new rate, the first affected pay period and how kilometres should be submitted. Set a reminder for February 2027 to check whether the temporary rate ends, changes or is replaced.

Employers looking for practical support can review the employment law membership plans or request a free initial guidance call.

Common mistakes to avoid

• Changing the rate on the wrong date: applying $1.05/km to a partial pay period without checking the full-pay-period rule can create inconsistent results.
• Applying it to everyone: the allowance is tied to eligible award work and vehicle use, not simply employment in aged care or community services.
• Ignoring manual claims: staff may submit kilometres through forms, spreadsheets or manager approvals rather than the main payroll system.
• Failing to explain the change: employees are more likely to raise disputes when the payslip changes without context.
• Forgetting the temporary end date: the rate is scheduled to run only through 28 February 2027, so treat it as a controlled payroll change.

How to communicate the change to employees

Managers should receive the same information before employees do. They may approve travel claims, roster staff across multiple locations or answer questions about whether a journey is work-related. Give managers a simple escalation path for unusual claims rather than encouraging them to make ad hoc decisions about award entitlements.

What if the business has an enterprise agreement?

Compare the wording, eligibility conditions, rate and record-keeping requirements. If the arrangement is unclear, obtain employment law advice and keep the advice with the payroll change record. The employer guide to recent award changes illustrates why payroll teams should check the actual instrument and effective date rather than relying on a general industry assumption.

Questions for a payroll audit

Use these questions to check the change has been implemented properly:

1. Which employees were paid a vehicle allowance in the last three pay runs?
2. Are any eligible claims submitted outside the standard payroll code?
3. What is the first full pay period commencing on or after 1 September 2026?
4. Does the payroll system calculate $1.05 per kilometre and display the payment clearly?
5. Can the business reproduce the kilometres, approval and rate for each payment?
6. Has a reminder been set for the scheduled end of the temporary rate on 28 February 2027?

A short audit is worthwhile because allowance errors can repeat across multiple pay periods. Fixing the configuration, communicating the correction and preserving the calculation trail is usually more efficient than investigating a series of individual complaints later.

What records should employers retain?

Keep the award or official guidance relied on, the affected employee list, kilometres claimed, approval records, pay-period calculations, payroll configuration change and employee communication. These records support ordinary payroll governance and make it easier to investigate an underpayment concern.

The free employment documents and templates available from Fair Work Centre can help standardise internal notices and checklists. Employers should still tailor any document to their actual award coverage and payroll process.