Finding an underpayment feels bad. Sitting on one is worse, and since 1 January 2025 it can be criminal: intentional underpayment now carries penalties for companies of up to the greater of $9.1 million or three times the underpayment for conduct from 1 July 2026, and up to ten years' imprisonment for individuals. The Fair Work Ombudsman recovered $358 million in unpaid wages in 2024-25, and the detection tools (STP data, employee awareness, union activity) keep improving.
The good news is that discovered-and-fixed reads completely differently from discovered-and-hidden, both legally and with your team. Employers who find their own errors, remediate quickly and document fully almost always land softly. This guide is the process, in order, for the week you find it and the months after. It covers the how; the criminal wage underpayment framework covers the offence itself, and our analysis of the $358 million in recovered wages covers who gets caught and how.
Published: August 2026
Before any lookback, fix the go-forward position. Correct the rate, classification or setting that caused the error so the next pay run is right, even if you are still quantifying the history. Every additional wrong pay run after discovery weakens the "honest mistake, promptly fixed" position and, for a deliberate continuation, feeds the intent element the criminal provisions turn on. If the error came from payroll configuration, trace it to the setting, not the symptom: our guide to award classification errors covers the most common root cause, and misconfigured platforms are behind more underpayments than bad intent ever was.
Underpayment claims reach back six years, so the review period is the shorter of six years or the period the error existed. Define three things in writing: which employees are affected (one person, one classification, or everyone under a setting), which pay elements are affected (base rates, penalties, overtime, allowances, loadings, super), and which records you will rely on (rosters, timesheets, payslips, STP reports, bank records). Where the affected group is large, calculate a representative sample first to size the problem, then decide whether full recalculation is warranted. Resist the temptation to scope narrowly to get a smaller number; a remediation that later proves under-scoped is worse than the original error.
The recalculation compares what was paid against what the instrument required, pay period by pay period. The commonly missed components: casual loading interacting with penalties, overtime triggered by roster patterns rather than weekly totals, allowances that attach to duties rather than classifications, annual leave loading, and the flow-through to superannuation. Two traps deserve their own sentences. First, if an annualised salary was meant to cover award entitlements, the annual reconciliation obligation applies, and the absence of that reconciliation is often how the underpayment arose; our annualised salary reconciliation guide covers the mechanics. Second, super is calculated on the corrected earnings, so a wage shortfall almost always creates a super shortfall too.
A worked hypothetical shows how a small error compounds. Take an employee misclassified one level low at $1.20 an hour, working 30 hours a week, discovered 18 months in: the base shortfall is 1.20 × 30 × 78 weeks, or $2,808 gross, before penalty rates and loadings calculated on the corrected base for any weekend or overtime hours. Superannuation flows through at 12 per cent of the corrected earnings, adding roughly $337, and because the original quarterly deadlines have passed, that super component lands in the super guarantee charge regime rather than a simple top-up. One setting, one employee, and the true figure is already 15 to 20 per cent above the number a quick wages-only estimate produces. Multiply by the affected headcount before deciding whether a representative sample is enough.
Late or short super is not fixed by simply paying the difference, and the rules changed on 1 July 2026, so a six-year lookback will usually straddle two regimes. For quarters up to 30 June 2026, the old superannuation guarantee charge applies: the shortfall recalculated on a broader earnings base, plus nominal interest at 10 per cent, plus a $20 administration fee per employee per quarter, none of it deductible, self-assessed on SGC statements. For paydays from 1 July 2026, the redesigned charge applies: contributions must reach the fund within seven business days of payday, and a shortfall attracts daily compounding interest at the general interest charge rate plus an administrative uplift of up to 60 per cent of the shortfall, assessed by the ATO rather than self-reported, with the uplift cut sharply for voluntary disclosure. Unlike the old charge, the redesigned charge is tax deductible. Either way, shortfalls now surface in days rather than quarters and the fix-it-quietly window has effectively closed; our guide to why late super is now a Fair Work problem covers how the two regimes interact. Work the super component with your registered agent; it has its own forms, its own deadlines and its own disclosure logic.
Pay the gross shortfall through payroll, not as an off-books transfer. Back payments have specific PAYG withholding and STP reporting treatment depending on the periods they relate to, and lump sum categories exist precisely for this; run the payment through your payroll platform with your agent's guidance so the employee's tax position and your STP records both end up correct. Pay promptly once calculated: interest on the moral ledger accrues faster than interest on the legal one.
Affected employees first, in writing, with the calculation shown: the period, the error, the gross amount, the super component and the payment date. Plain language beats legal language; people forgive errors explained plainly and remember errors explained defensively. Then decide on regulator disclosure. There is no universal obligation to self-report a remediated underpayment to the FWO, but disclosure is often strategically right for large, long or sensitive matters, and for small business employers there is a specific incentive: compliance with the Voluntary Small Business Wage Compliance Code means the FWO cannot refer the conduct for criminal prosecution. Where the matter is material, get employment law advice on the disclosure question specifically; it is the one step in this process where the right answer varies most.
Build one remediation file: how the error was found, the scope decision, the calculation method, sample checks, payments made, communications sent, and the configuration or process change that prevents recurrence. That file is the difference between an honest-mistake narrative and an unsupported assertion if anyone ever asks. Then actually fix the cause: reclassify against the current award, correct the platform settings, and put a periodic classification review in the calendar. If payroll settings were the culprit, our guide to Employment Hero payroll setup mistakes covers the seven configurations that cause most of them, and the employee cost calculator shows the full loaded cost your corrected settings should now produce.
Do I have to report an underpayment to Fair Work?
There is no blanket self-reporting obligation for a remediated underpayment, but disclosure can be strategically right for large or long-running matters, and small business employers who comply with the Voluntary Small Business Wage Compliance Code are protected from criminal referral. Take specific advice on this step for material matters.
How far back do I have to go?
Six years, or the life of the error if shorter. Scoping properly at the start costs less than re-opening a remediation that proves too narrow.
Is an accidental underpayment a criminal offence?
No. The criminal provisions that started on 1 January 2025 target intentional underpayment. Honest mistakes remain civil matters, which is exactly why the discovery-response pattern matters: fix fast, pay fully, document properly.
What if I cannot afford the back-pay in one hit?
Talk to the affected employees and, where relevant, the FWO about a payment plan rather than delaying the calculation or the admission. A documented schedule paid on time is defensible; silence is not. The super component's SGC deadlines run on their own clock regardless.
Does the underpayment affect super too?
Almost always. Super is payable on the corrected earnings, and once the original deadlines have passed the SGC regime applies with interest and non-deductible components. Treat the super shortfall as a parallel workstream with your registered agent.
How do I stop it happening again?
One owner for the payroll boundary: the same function that classifies employees under the award verifies the pay run against those classifications and tracks the super deadline. Split ownership between a bookkeeper and an HR adviser who never compare notes is how most underpayments start. That single owner is the boundary our combined finance and HR services exist to hold.
Do former employees have to be back-paid too?
Yes. The six-year window covers people who have left, and their entitlement to the shortfall does not end with their employment. Locating ex-employees and processing their payments correctly through payroll is routine remediation work; skipping them is how a closed matter reopens.
How long do I keep the remediation records?
Employee records must be kept for seven years under the Fair Work rules, and the remediation file should live at least that long alongside them. Treat the file as the asset it is: it is the evidence of an honest mistake fixed properly.
Does the Voluntary Small Business Wage Compliance Code protect every business?
No, it applies to small business employers, generally those with fewer than 15 employees. Larger employers do not get the criminal-referral protection, which raises the stakes on remediating quickly, documenting fully and taking advice on disclosure for material matters.
Scale Suite is a Sydney-based provider of outsourced finance teams and fractional CFO services for Australian SMEs. We deliver weekly bookkeeping, payroll, BAS/IAS lodgement, cashflow reporting, management accounts, and strategic fractional CFO oversight, all as a fully embedded team that works inside your business.
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We review and check this guide periodically. At the time of writing (August 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Employment law matters should be raised with a qualified workplace lawyer. Some details may change over time.
Sources
Fair Work Ombudsman, Voluntary Small Business Wage Compliance Code: https://www.fairwork.gov.au
Fair Work Ombudsman, criminal prosecution: https://www.fairwork.gov.au/about-us/compliance-and-enforcement/criminal-prosecution
ATO, superannuation guarantee charge: https://www.ato.gov.au/businesses-and-organisations/super-for-employers/missed-and-late-super-guarantee-payments
ATO, the new super guarantee charge under Payday Super: https://www.ato.gov.au/businesses-and-organisations/super-for-employers/payday-super/missed-or-late-payday-super-payments/the-new-super-guarantee-charge
Fair Work Ombudsman, 2024-25 annual report: https://www.fairwork.gov.au/newsroom/media-releases/2025-media-releases/october-2025/20251029-annual-report-2024-25-media-release
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
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