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This week's cyber attack on a major HR software provider sends a big warning to employers about vigilance and due diligence in this area, a payroll expert says.

Frontier Software, which is understood to cover more than a quarter of large employers, confirmed on Monday that it was experiencing a "cyber incident" that was limiting customers' access to some systems and data.

About 330 organisations were affected by the event, and Frontier advised clients to prepare to activate their contingency plans for payroll processing.

Using outsourced or hosted payroll has been growing in popularity and it "makes a lot of sense" given how regularly legislation changes, says Australian Payroll Association CEO Tracy Angwin.

"However, this does add significant cyber risks to a system which has sensitive data including employee names, addresses, dates of birth, tax file numbers and banking details. So it's critical that when considering your payroll technology, employers do their due diligence in this regard, including asking for copies of the vendor's latest penetration testing to ensure risks of cyber crime are minimised...