UNFAIR DISMISSAL

Wage remediation means the process of identifying, correcting, and back-paying employees who have been underpaid due to payroll or award compliance errors. It typically involves an audit of pay records against the relevant awards, contracts and/or enterprise agreements, calculating shortfalls, and repaying affected staff. Our team at Makeham Flaherty assist Australian businesses undertake these projects quickly, efficiently and defensibly.

The Australian industrial landscape is one of the most complex in the world. With more than 120 industry specific modern awards which change regularly, hundreds of enterprise agreements, the Fair Work Act 2009 (Cth) running to over 1,200 pages, the National Employment Standards and the minimum wage which is updated annually, the superannuation regime, and separate state-based schemes for payroll tax and long service leave, it is no surprise employers sometimes make mistakes. Underpayments can occur due to a wide range of issues, including payroll software configuration errors or limitations, manual processing errors, incorrect classification under an award or agreement, incorrect interpretation or understanding of an award agreement, failure to keep accurate records or timesheets, HR practices, complex and multiple award coverage, changing rates of pay and many more.

The Fair Work Ombudsman identifies underpayments through proactive compliance audits and campaigns targeting high-risk industries, anonymous tip-offs (which rose sharply in recent years), formal employee complaints, union right-of-entry inspections, and voluntary employer self-disclosure. Employers often identify underpayments through their own proactive payroll testing or through staff and/or union complaints or enquiries. Employers may also discover issues when there is a change in personnel, or when the business introduces a new payroll system, award or enterprise agreement. Our team at Makeham Flaherty assist businesses and other organisations in Melbourne and across Australia with scoping and undertaking proactive payroll assurance exercises, including sample testing, classification reviews and system configuration reviews, to identify issues early and minimise legal risk.

If the underpayment issue is a small and isolated incident, often employers can simply rectify the issue and back pay the employee without the need for further advice. However where the issue is broader, systemic or long-running, we recommend obtaining legal advice as soon as possible. This ensures you obtain confidential and privileged legal advice regarding your potential legal exposure and can properly scope any remediation required to ensure it manages legal, financial and reputational risk appropriately. Makeham Flaherty can guide your business through self-reporting obligations with the Fair Work Ombudsman and other regulators, back-payment calculations, forward-facing corrective actions, and communications with affected employees and any other key stakeholders such as unions.

In Australia, 'wage theft' refers specifically to the criminal offence in the Fair Work Act 2009 (Cth) of intentionally underpaying wages or entitlements (including superannuation). Ordinary underpayment issues arising from payroll errors, genuine misinterpretation of an award or agreement, or system faults without intent remain civil contraventions only, enforced through compliance notices, enforceable undertakings or court penalties, not criminal prosecution. Honest mistakes are explicitly excluded from the criminal offence.

No. The criminal underpayment offence in Australia requires proof the employer intentionally engaged in conduct resulting in underpayment. Genuine, unintentional errors are excluded. However, if an employer 'recklessly' underpays its staff, it can be liable for 'serious contraventions' of the Fair Work Act 2009 (Cth) which carries 10 times the usual penalties. As at 1 July 2026, the penalties for serious contraventions are the greater of $5,460,000 or three times the amount of the underpayment. By way of illustration, if an employer discovers an underpayment and knowingly fails to fix it , that later conduct could be deemed 'reckless'. Further, a company can be said to have recklessly underpaid its staff if it fostered an environment that tolerated non-compliance.

The Voluntary Small Business Wage Compliance Code is a framework that shields small businesses in Australia (fewer than 15 employees, assessed at the time of the conduct) from criminal referral for wage theft, provided the FWO is satisfied the business complied with it. Compliance is assessed case-by-case on factors like whether the employer took reasonable steps to ascertain correct pay rates, stayed up to date with changes, sought advice from a reliable source, promptly corrected any underpayment, and cooperated with Fair Work Ombudsman inquiries. It does not protect against civil action for underpayment of employees (including reckless underpayments / serious contraventions), only against criminal referral.

In Australia, self-reporting to the Fair Work Ombudsman is not mandatory, and minor, isolated payroll errors spanning up to 12 months generally don't need to be reported if the employer tells the affected employee, back-pays promptly and fixes the underlying cause. However, for broad, systemic or long-running underpayments, the Fair Work Ombudsman strongly encourages voluntary disclosure. Our team at Makeham Flaherty can assist with advising on disclosure and remediation strategy and engaging with the Fair Work Ombudsman and other regulators.

The basic method is: the amount that should have been paid (correct award/ agreement/ contract rate, including base pay, penalties, overtime, allowances and leave entitlements) minus the amount actually paid, for each pay period across the underpayment period, together with superannuation on the back-paid "qualifying earnings" and, where appropriate, interest. Our team at Makeham Flaherty regularly assist Australian businesses with their back payment calculation methodology and requirements.

Wage remediation projects vary depending on the size of your workforce, the complexity of the awards or agreements involved, the quality of existing payroll data, as well as the number of underpayment issues involved. Straightforward matters can be resolved in a matter of weeks, while larger or more complex remediations may take several months. Our team at Makeham Flaherty has experience across all types of wage remediation programs; from simple issues spanning short periods of time through to large organisations with long-running, systemic issues.

Yes. We work with you (and, where needed, your payroll or accounting advisors) from initial risk assessment through to calculation methodology, employee communications, and final resolution, so the process is managed efficiently and consistently from start to finish.