Personal Risk to Managers and Business Owners who Underpay Employees - 17th April 2018

Managers and business owners who underpay employees are increasingly at risk of being fined personally if they underpay employees. More often than in the past, the Fair Work Ombudsman [FWO] is prosecuting individual company directors and managers (including HR managers) where the businesses they own or manage have underpaid employees.

In a very recent case a manager was personally fined $43,000 for his role in underpayments to several employees (the fine was more than the underpayments), failure to provide payslips and to keep the records required under the Act. In a 2017 case involving a Newcastle business, its HR Manager was personally fined over $21,000 for her role in extensive and systematic underpayments to a number of employees. She had advised the business owner what the proper Award rates were, but had then processed underpayments when directed to by the owner, and she had also created false records at the owner's direction.

In the past, the FWO has usually prosecuted directors personally where the company had become insolvent or there was evidence of large-scale and deliberate Award avoidance by the company with active involvement by the director. It was rare for a manager who was not also the business owner or director to be prosecuted.  This has changed.

Serious Contraventions

This harsher approach by the FWO follows several high-profile cases of large-scale and systemic underpayment of Award rates and entitlements to vulnerable employees, often young or foreign workers, and changes to the penalties provisions of the Fair Work Act made as a consequence of these cases.  The changes introduced a new category of "serious contraventions", with fines which are double the previous maximum penalties- a maximum of $126,000 for an individual and $630,000 for a company.  Fines are on top of any orders to remedy underpayments.

It is important to be aware that not every case of failure to comply with the National Employment Standards under the Fair Work Act or Award obligations, or failure to keep the required records, will be a "serious contravention" and subject to these higher penalties.

For there to be a serious contravention, there must be a deliberate, systematic pattern of conduct.

Conduct will be deliberate where the employer either knew what their obligations were and chose not to comply or wilfully failed to find out what their obligations were (e.g. didn't check to see whether an Award applied or what the employees' entitlements were under an Award or the Act; or didn't keep proper time and wages records, or provide correct payslips to employees).

Whether conduct is systematic will depend on the number and degree of contraventions, the length of time over which they occurred, and the number of employees affected.
A manager may incur "accessorial liability" if they were involved in the contraventions and knew they were serious. Involvement can include a manager's failure to take action to stop or correct a serious contravention.  Accessorial liability can also include:

  • an adviser (e.g. an accountant, book-keeper, or consultant) giving incorrect advice to a client about their employment obligations or assisting a client to avoid their obligations; or
  • a franchisor who knew or should reasonably have known that their franchisee was engaged in a serious contravention.

Failure to keep records - reverse onus of proof

Apart from such a failure possibly being a serious contravention in itself, if an employer has not kept the records required under Act (which includes time and wages records) or provided proper, accurate payslips, or did not produce or make the records available when they were required to do so, and does not have a reasonable excuse for their failure to comply, then the employer will be subject to a reverse onus of proof if an employee brings a claim for underpayment.

This means that instead of the employee having to prove the claim, the employer will have to prove that it did pay the employee correctly and/or gave them the proper entitlements. In other words, the court will presume that the employee's claim is well-founded unless the employer can disprove it.  This will be difficult (impossible?) if the employer has not kept the correct records!

How to avoid trouble

Most employers already do this very successfully. They make sure they know what their obligations are and comply. They check the Award and the pay-rates (including allowances) and keep up to date. They keep good records, and provide payslips to their employees. They don't cut corners. They seek professional advice if they aren't sure.  They use advisers who themselves get specialist advice if they don't know.

There are many sources of advice easily available to employers these days.

The best starting place is your professional adviser (a specialist consultant, your accountant or lawyer) or a business or industry association. For self-help, the Fair Work Ombudsman's website ( is a great starting place. It includes the Modern Awards, including current and past Pay Guides for most Awards that give the rates of pay and allowances without your having to work them out (see the "Summaries" column on the right-hand side of the Award page). There is also information about a wide range of employment matters.

If you need further help, call Greg Kerr at Effective Workplace Pty Limited as he is always happy to assist.
Greg Kerr
Effective Workplace Pty Ltd
M: 0400 407 224

This article contains general advice only and provides only an overview of the subjects covered. It does not provide advice on any specific situation. You must not rely on the above as a substitute for professional advice on your specific circumstances. If the subjects covered above relate to your circumstances, or you think they might relate, you must seek formal advice from a qualified professional about your specific circumstances.

Go Back