Regulating AI in the workplace: What employers need to know

In recent years, businesses have increasingly adopted artificial intelligence (AI) as a tool to increase productivity and efficiency, reduce manual processes, innovate and in some sectors, radically transform the way work is performed. Employers are also starting to explore opportunities to utilise AI as a workforce management tool. This rapid development of AI has seemingly outpaced government regulation so far, but in 2026 it is clear the legislation is starting to catch up.

This article examines how AI is currently being used by employers to help manage the workforce, how the Australian Government has indicated it will approach regulating AI used in the workplace, and new regulatory developments on the horizon.

What is AI? What are its current and future applications in the workplace?

In this article, AI refers to technologies which use algorithms to find patterns in large data sets, recognise images and audio, summarise, translate, predict and generate materials and text. These technologies are used to make decisions and solve problems that would usually require human intelligence and input. Much attention has been given to date to how AI is driving transformation and creating value in the operational sense – consider the banking and finance industry where AI is used to great effect in fraud detection, cybersecurity monitoring and risk management. On the other hand, businesses are also looking inwards – and making investments in AI systems for their workforces that can
help them boost efficiencies and save time and money. Employers have reported using AI in this context to help with tasks like:

• generating content, such as communications, presentations, job descriptions or policies;
• analysis and reporting; and
• answering employee questions through employee self-service functions such as chatbots.

Currently, it appears AI is embraced where it can boost efficiency and free up time historically spent on administrative tasks. However, this is only the tip of the iceberg where it comes to AI potential. A small percentage of employers have reported using AI in recruitment to assist with screening and shortlisting, to analyse and monitor performance, make workforce decisions, and automate tasks such as roster allocations and scheduling. In the digital age, monitoring and surveillance tools have become increasingly prevalent – capable of listening to and watching employees, monitoring screens and logging keystroke activity data. When paired with the analytic capabilities of AI, future applications could include, perhaps controversially, enabling employers to draw conclusions about employees’ performance and even predict their future behaviours, work satisfaction, leadership potential and likelihood of disobedience.

The debate to regulate

In 2023, the Federal Labor Government at its National Conference opened with a platform seeking to ensure the development of an AI policy that benefited Australians, whilst introducing guardrails and governance measures to safeguard Australian communities and protect against the known and emerging risks associated with AI.

Since then, the Federal Government has launched numerous inquiries into digital transformation and risks of AI. In September 2024, the Department of Industry, Science and Resources concluded that Australia’s regulatory system was not fit for purpose to support the safe and responsible use of AI in high-risk settings, and proposed the introduction of 10 mandatory guardrails for high-risk AI (including in employment and workplace settings).

A further report issued in January 2025 by the House Standing Committee on Employment, Education and Training set out a further 21 recommendations – including to adopt the mandatory guardrails, classify AI systems used for employment related purposes as high-risk, ban the use of AI to make decisions affecting workers without human oversight, and undertake a review of employment, privacy, work health and safety legislation and modern awards to protect employees from the use of emerging technologies in the workplace.

Despite this, in its national AI plan released in December 2025, the Federal Government seems to have ultimately retreated from implementing mandatory guardrails, instead opting to rely on updating existing, technology-neutral laws and regulatory frameworks to address the risks of AI and treating introducing AI-specific regulation only as a last resort.

New developments at law

The legal landscape continues to evolve, with the Federal Government passing the Privacy and Other Legislation Amendment Bill 2024 (Cth) on 29 November 2024, introducing a sweeping range of privacy law reforms (which included the introduction of the new statutory tort of serious invasion of privacy). On the topic of AI, the legislation also introduced new obligations requiring organisations using computer programs to make decisions which could affect individuals, to update their privacy policies to make transparent how personal information would be used by those automated decision-making programs. The privacy reforms with respect to automated decision-making will come into effect from 10 December 2026.

At a State level, on 18 November 2025, the Victorian Government gave in-principle support to 15 of 18 recommendations made following an inquiry into workplace surveillance, including to require employers to ensure human oversight over any automated decision-making using workplace surveillance data that could significantly affect the interests of workers. Victoria currently does not have in place any workplace-specific surveillance legislation and so any forthcoming reform in this area should be monitored closely.

Not to be outdone, on 12 February 2026, the NSW Government passed the Work Health and Safety Amendment (Digital Work Systems) Bill 2025 (NSW), under which persons conducting a business or undertaking will be required to ensure that the use of ‘digital work systems’ (defined as an algorithm, AI, automation or online platform) does not risk workers’ health and safety – including by creating risks of unreasonable workloads, performance metrics, monitoring or surveillance of workers, or unlawful discriminatory practices or decision-making in the business. The changes are not yet in effect and will commence by proclamation from a date yet to be announced by the NSW Government.

What does this mean for employers?

Employers should continue to expect debate around AI regulation in coming years as society weighs the benefits of AI use against its consequences and the associated impacts on people. In the meantime, employers should:

• if operating in NSW, consider whether any of their systems could be caught by the broad definition of a ‘digital work system’, including technology such as mobile phone apps, automated rostering systems or monitoring and tracking tools, and be prepared to identify and control work health and safety risks arising from those systems;
• map their use of AI in the workplace and catalogue any tool that uses automated decision-making to influence employee outcomes;
• for those who use automated decision-making or AI tools in recruitment, promotion, training or termination practices, review and update their privacy policies before 10 December 2026;
• stay alert for legislative reform in relation to workplace surveillance, particularly for employers with Victorian operations; and
• stay alert for other legislative developments targeting AI use in the workplace.