Your Business Is Facing an Underpayment or Wage Theft Claim
Underpayment claims are one of the highest-risk areas for Australian employers. Whether you have received a letter from the Fair Work Ombudsman, a complaint from a current or former employee or discovered a potential issue through an internal review, how you respond in the early stages can be the difference between a managed remediation and a criminal prosecution. Since the introduction of wage theft as a criminal offence, the stakes for employers have never been higher.
What You Need To Know
Deliberate underpayment of employees is a criminal offence under the Fair Work Act, carrying penalties of up to $7.825 million for companies and up to $1.565 million or imprisonment for individuals.
The Fair Work Ombudsman has broad investigative powers including the ability to compel production of documents, require attendance at interviews and enter premises. Obstruction of an investigation is itself an offence.
Underpayment claims can be brought within 6 years of the amount becoming due. A single misclassification or incorrect award application can result in back-pay liability spanning years and affecting multiple employees.
The Fair Work Ombudsman operates a Cooperation Policy. Employers who self-report underpayments and voluntarily remediate are treated more favourably than those who are caught. Early disclosure can be the difference between a compliance outcome and a prosecution.
Common causes of underpayment include incorrect award classification, failure to pay overtime or penalty rates, misclassification of employees as contractors (sham contracting), annualised salary arrangements that don't meet minimum entitlements and incorrect application of piece rates or commission structures.
Directors and senior managers can be held personally liable as accessories to underpayment contraventions if they were knowingly involved in the breach.
What To Do Right Now
Assess the scope of the issue
Determine whether the underpayment affects one employee or many, the time period involved and the likely quantum. Review the applicable modern award or enterprise agreement and compare it against what was actually paid. A payroll audit is often the first step.
Preserve all records
Do not alter or destroy payroll records, time sheets, rosters, employment contracts or related correspondence. Record-keeping failures create an adverse inference -if you cannot prove what was paid, the employee's version is more likely to be accepted.
Consider voluntary disclosure
If you have identified a genuine underpayment, the Fair Work Ombudsman's Cooperation Policy incentivises self-reporting and voluntary remediation. Proactive disclosure is a significant mitigating factor and can avoid prosecution entirely.
Understand your personal exposure
If you are a director or senior manager, assess whether you could be treated as an accessory to the contravention. Personal liability arises where an individual was knowingly involved in or aided and abetted the underpayment.
Get legal advice before responding to the regulator
If the Fair Work Ombudsman has commenced an investigation, your response to their first letter or request for information sets the tone. Legal advice at this stage shapes whether the matter resolves cooperatively or escalates to enforcement.
How We Can Help
We act for employers facing underpayment claims, Fair Work Ombudsman investigations and wage theft proceedings. We conduct payroll audits to identify and quantify exposure, prepare voluntary disclosure submissions, negotiate remediation agreements with the regulator and defend enforcement proceedings where necessary. We also advise directors on personal liability and structure remediation programs that protect the business going forward.
If the Fair Work Ombudsman has written to you, respond within the deadline in their letter.
Don't wait until your options narrow.
We can usually assess your position within a single consultation. Call us or send an enquiry and we will get back to you promptly.