Underpayment claims, and the significant penalties that can flow from breaching your obligation as an employer to ensure that employees are correctly paid their entitlements, can severely damage your business.
The responsibility for complying with workplace laws does not just affect employers but extends to individuals within the business e.g. directors, managers, HR managers – and also extends to external advisors such as accountants, HR consultants and lawyers where they have played a part in the breach.
Common mistakes made which cause underpayments
- Misunderstanding workplace obligations and requirements under the Fair Work Act 2009, enterprise agreement and Awards.
- Not paying the correct entitlements to employees
- Not correctly classifying employees under the Award or enterprise agreement
- Failing to increase wages to accommodate the minimum wage increase each year
- Not understanding obligations with respect to paying overtime rates, penalty rates, allowances and meal breaks
- Not keeping proper employment records
- Incorrect payment on termination
- Incorrectly classifying an individual as a contractor when they are really an employee
Key risks of getting it wrong
One disgruntled employee can make a complaint to the Fair Work Ombudsman alleging underpayment of entitlements, however, the Fair Work Ombudsman can also randomly audit your business to ensure compliance.
The risks for employers who are underpaying their employees can include reduced productivity, retention and disharmony in the workplace. However, more significantly, Fair Work Ombudsman investigations and court proceedings can result in significant orders for backpay and substantial penalties for breaches.
| Per contravention * | Serious contravention * | |
|---|---|---|
| Individuals | $19,800 | $198,000 |
| Small business (fewer than 15 employees) | $99,000 | $990,000 |
| Large business (15 or more employees) | The greater of $495,000 and 3 x the amount of the underpayment | The greater of $4,950,000 and 3 x the amount of the underpayment |
*Please note that the figures were correct as of 10 May 2026, but do change from time to time and are a guide only.
How can we help you?
Employers should take proactive steps to assess and ensure they are paying employees correctly and complying with the Fair Work Act, as well any relevant Award or enterprise agreement. Whilst obligations can overlap and be confusing, the Courts will not accept ignorance as an excuse.
Get in touch with one of our experienced Employment Lawyers for assistance to avoid the risks and hefty penalties that may come with underpaying your employees. We can help to ensure you are compliant and assist you with resolving any underpayment issues that arise.
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