If you’ve discovered that your business has inadvertently underpaid its employees, then it’s best to get professional legal assistance. We have helped businesses who’ve done exactly that.

Underpayments can occur in a variety of different ways. We’ve seen businesses who were unaware that an award applied to them and paid employees a flat rate. Therefore, the employees missed out on award entitlements such as overtime and penalty rates.

However, if an underpayment occurred, it doesn’t have to be the end. If you get professional advice and the situation is carefully managed, it can result in a positive outcome (e.g. your business can emerge stronger from a workplace compliance point of view).

The stakes are higher than they used to be. Since 1 January 2025, intentionally underpaying wages or entitlements can be a criminal offence for employers under s 327A of the Fair Work Act 2009 (Cth), and civil penalties have increased. Honest mistakes are not criminal, but they still have to be fixed.

Here are some ways we can assist your business if you believe an underpayment occurred.

If employees get wind of an underpayment issue, they can become unsettled and agitated. We can help you effectively manage your communication with them to keep them updated and to manage the messaging.

Once we’ve analysed everything, determined the underpayment, fixed the breaches and communicated with employees, then the next step to consider is whether to self-report to the Fair Work Ombudsman.

The Fair Work Ombudsman has self-reporting guidelines and generally encourages reporting if there have been more serious contraventions such as underpayments going back many years or if many employees are affected.

The Fair Work Ombudsman does not generally require self-reporting for smaller payroll errors over a shorter period of time e.g. less than 12 months.

Serious consideration needs to be given to self-reporting if:

• The underpayment is significant, for example in the hundreds of thousands of dollars

• It affects a large number of employees, or

• It's been happening for a long period of time e.g. more than 12 months.

It’s our practice generally to self-report (provided it’s required) once you have a full understanding of the errors and have fixed them. If you’re taking active steps to rectify the errors, and not simply “kicking the can down the road”, then a delay in self-reporting may be understood by the Ombudsman.

Where the conduct might be criminal, the Fair Work Ombudsman can enter into a cooperation agreement with an employer that voluntarily discloses it and cooperates; conduct covered by the agreement is not referred for criminal prosecution, although other enforcement action remains possible. A small business that has complied with the Voluntary Small Business Wage Compliance Code cannot be referred by the Ombudsman for criminal prosecution for an underpayment. Get advice before approaching the Ombudsman about either.

Once you self-report to the Ombudsman, it opens the floodgates. This is why we generally recommend you fix everything before self-reporting.

It’s important that you first comprehensively review all the issues before self-reporting. If you lodge a “half-baked” self-report to the Ombudsman, and the Ombudsman later finds many other breaches, then you might get a more heavy-handed approach from the Ombudsman. You might get a Fair Work Inspector attending the business premises - and they have many powers including interviewing employees, taking copies of records and taking samples of goods.

If you get an underpayment issue wrong, there is a risk that the business can be prosecuted by the Ombudsman.

The Fair Work Ombudsman, as well as affected employees, can commence legal proceedings against the business seeking compensation and pecuniary penalties.

Employees can generally claim underpayments going back 6 years (s 544).

Since 27 February 2024, maximum penalties for many contraventions by businesses with 15 or more employees have increased five-fold, and a “serious contravention” now includes a knowing or reckless contravention. From 1 January 2025, the maximum civil penalty for some underpayment contraventions by larger businesses can be three times the underpayment.

Criminal underpayment. Since 1 January 2025, an employer that intentionally fails to pay required amounts, such as wages, leave entitlements or superannuation, on time commits an offence. The Fair Work Ombudsman investigates and can refer matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police. Penalties can include fines and imprisonment. See the Ombudsman’s page on criminalising wage underpayments.

A pecuniary penalty is a fine designed to punish the business and to deter others from engaging in similar behaviour.

It’s also possible that any individuals within the business such as directors, members of the board, managers or human resource professionals who were involved in the contravention can also be personally liable for the business’s contraventions. Remember, proceedings are not limited to the company.

Superannuation. From 1 July 2026, under Payday Super, the superannuation guarantee (12%) is calculated on qualifying earnings for each payday, rather than quarterly, so contributions fall due much sooner. Check your payroll settings, and remember unpaid super is enforced by the ATO.

WA state system businesses. If your business is a sole trader, partnership or other employer outside the national system, WA laws apply to underpayments, with their own penalties and enforcement. See underpayments and enforcement in the WA state system.