Wage underpayments continue to be one of the most significant employment law risks facing Australian employers in 2026.
Underpayments are not always the result of deliberate conduct. Many occur because employers apply the wrong modern award, incorrectly classify employees, overlook penalty rates or rely on payroll systems that have not been updated.
However, an honest mistake can still create significant financial and legal consequences. Employers may need to back-pay affected workers, correct payroll records and respond to investigations or enforcement action.
For businesses in Brisbane, Queensland and across Australia, understanding the most common causes of underpayments is an important part of reducing workplace compliance risks.
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Applying the Wrong Award or Employee Classification
One of the most common causes of wage underpayments is applying the wrong modern award or incorrectly classifying an employee.
An employee’s job title alone does not determine the correct classification. Employers need to consider the duties actually performed, the employee’s responsibilities and the relevant classification structure under the applicable award.
A payroll system may continue to pay an employee at the same classification even after their duties have changed. Over time, this can result in substantial underpayments.
Employers should review employee classifications regularly, particularly when an employee’s role, responsibilities or seniority changes.
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Missing Penalty Rates, Overtime and Allowances
A base hourly rate is not always the full amount an employee is entitled to receive.
Depending on the applicable award or agreement, employees may also be entitled to penalty rates, overtime, allowances, minimum engagement payments or other monetary entitlements.
Recent Fair Work Ombudsman compliance activity continues to demonstrate how frequently businesses encounter problems in these areas. In one recent aged care investigation, common issues included underpayment of minimum rates, overtime and shift-related entitlements, as well as failures relating to employment records.
Employers should ensure that payroll systems accurately capture when employees work, including overtime, weekends, public holidays and other periods that may attract additional payments.
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Assuming a Salary Covers Everything
Paying an employee a salary does not automatically remove award or enterprise agreement obligations.
Some employers assume that because an employee earns more than the minimum hourly rate, their salary automatically covers overtime, penalty rates, allowances and other entitlements. This may not be correct.
Annualised wage arrangements and contractual salary offsetting arrangements can be subject to specific rules. Depending on the arrangement, employers may need to keep detailed records, monitor hours and regularly compare the employee’s salary against what they would have received under the relevant industrial instrument.
The Fair Work Ombudsman specifically advises employers to review annualised wage arrangements when award rates change or an employee’s working arrangements change. Where an employee receives less than their applicable award entitlements, the shortfall may need to be paid.
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Failing to Update Payroll After Wage Changes
Employment entitlements do not remain static.
Changes to minimum wages, modern award rates and other workplace entitlements can affect payroll calculations. Employers who fail to update their payroll systems following a change may unintentionally continue paying outdated rates.
Employers should have processes in place to monitor:
- Annual minimum wage changes
- Modern award variations
- Classification changes
- Changes to employee duties
- New allowances and penalty rate requirements
The Fair Work Ombudsman recommends that employers regularly check relevant employment classifications and stay informed about future wage increases and award changes.
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Poor Time and Attendance Records
Employers cannot accurately pay employees if they do not accurately record the work performed.
Inadequate timesheets and timekeeping systems can make it difficult to identify unpaid overtime, missed breaks or penalty rate entitlements.
Record-keeping is also a legal compliance issue in its own right. Employers must keep prescribed employment records, including information about pay and, where applicable, hours worked, penalties and other entitlements.
For annualised wage arrangements, some awards require additional records, including starting and finishing times and unpaid breaks.
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Incorrectly Treating Employees as Contractors
Worker classification is another area of significant risk.
Simply requiring a worker to have an ABN or describing them as an independent contractor does not necessarily determine their legal status. The practical nature of the working relationship must be considered.
Incorrect classification can create exposure to claims involving unpaid wages and other employment entitlements. Employers should carefully assess proposed contractor arrangements rather than relying solely on labels or contract wording.
What Should Employers Do to Reduce Underpayment Risks?
A proactive payroll review can help identify problems before they become larger disputes.
Employers should consider:
- Reviewing the awards and classifications that apply to employees
- Auditing pay rates, overtime, penalties and allowances
- Reviewing salary and annualised wage arrangements
- Checking payroll systems following wage or award changes
- Maintaining accurate time and attendance records
- Reviewing contractor and employee arrangements
- Seeking advice where employment obligations are unclear
Protect Your Business With NB Employment Law
Wage underpayments can result from a single payroll error, but where the same error affects multiple employees over an extended period, the financial and legal consequences can quickly increase.
If you are concerned that your business may have a payroll issue or want to review your employment arrangements before a problem arises, talk to NB Employment Law today and take proactive steps towards a more compliant workplace.