Many employers fear any payroll mistake could land them in jail. However, the legislation addresses only “intentional” underpayments.

While honest mistakes may still lead to penalties, small businesses (with less than 15 employees) that comply with the Voluntary Small Business Wage Compliance Code can protect themselves from potential criminal prosecution. The Code covers areas such as taking reasonable steps to work out correct pay rates and entitlements.

For large businesses (with 15 or more employees), failing to pay wages or superannuation – whether intentional or not – can also still lead to significant civil penalties under the Fair Work Act 2009.

Provided below are some fictional examples.

FastTrack Repairs

Linda, the owner of FastTrack Repairs, knowingly underpays her employees. She deliberately pays her workers below the minimum wage and withholds superannuation, assuming no one will check.

Sam, an employee, noticed discrepancies in his pay. He checked his award entitlements and realised he was being significantly underpaid. Assuming this could be a mistake, he went to Linda with his concerns.

Linda brushed off these concerns, saying “That’s just how we do things here. If you don’t like it, you can find another job.”

Sam, knowing his rights, filed a complaint with the Fair Work Ombudsman (FWO). After an investigation, the FWO found Linda was intentionally underpaying her employees. As her actions were found to be deliberate, she faces:

• Criminal charges under new workplace legislation
• A fine of three times the underpaid amount, or up to $7.925 million for the company
• A maximum of 10 years in prison if found guilty as an individual.

Lisa’s refusal to follow the legislation has resulted in severe legal and financial penalties, also damaging her business and reputation.

GreenTech Solutions

At GreenTech Solutions, payroll calculations are normally accurate. However, one employee, Alex, notices a mistake – he believes he has been underpaid for the last two months.

Alex decides to approach the HR Manager, Samantha. She immediately reviews Alex’s records and realises there has been an error in the payroll system that has impacted several employees. Concerned about compliance, she decides to call Fairwork for guidance.

She was advised:

• Unintentional underpayments are not considered criminal offences but must be corrected promptly
• The business must calculate and backpay the underpaid amount as soon as possible
• Keeping accurate records and having a process for employees to raise concerns can help prevent future mistakes
• Updating payroll systems and conducting regular wage audits may reduce the risk of potential errors occurring.

Following this advice, Samantha:

• Immediately corrects the underpayments and issues backpayments to affected employees
• Informs all staff about the mistake and how it was fixed
• Implements an internal payroll audit process to ensure compliance moving forward.

Alex and his colleagues feel reassured knowing they can confidently raise concerns internally and trust management will take prompt action to resolve them.

Summary

Mistakes happen, but as of 1 January 2025, intentional underpayments are now considered a criminal offence.

If you make a payroll error, fix it fast. Backpay employees and rectify your payroll processes.

Remember your wages & super are now visible to the ATO because of STP lodgements.