Wage theft vs. payroll mistakes: differences and solutions

Getting wages right isn’t just important, it’s the law. Every year, both big and small Australian businesses get caught underpaying staff. You’ve likely heard of cases where businesses were forced to backpay workers or got hit with massive fines. Some well-known brands have ended up in court over it. In just one year (2023) the Fair Work Ombudsman (FWO) recovered over $500 million in unpaid wages.

Not every underpayment is wage theft. Sometimes, it’s just a genuine stuff up.

In this article, we explain what counts as wage theft, how payroll mistakes happen, and the consequences of both. We also cover how businesses can mitigate these issues.

Key differences between wage theft and payroll mistakes

Not paying staff properly is a serious issue. But there’s a big difference between messing up payroll and straight-up ripping off workers.

Wage theft is intentional. Payroll mistakes aren't.

When a business underpays employees, skips entitlements, or dodges superannuation contributions on purpose, it's wage theft. They haven't made a mistake. It’s a deliberate choice. And it’s illegal.

On the other hand, there are payroll mistakes. And they're just that - mistakes. It could be a matter of a business using the wrong pay rate or not getting their overtime calculations right. They might also just forget to update payroll after an award change. These forms of underpayment are still problematic. They're not crimes, though. But they do need to be fixed when spotted.

The table below provides a quick overview of the key differences between wage theft and payroll mistakes to help you understand: 

The major problem? It’s not always easy to tell the difference.

Some businesses claim they 'made a mistake' when they actually knew what they were doing. Others genuinely mess up because payroll in Australia is as complicated as it gets. But legally, intent matters. The bottom line is that if a business knowingly underpays workers, it’s wage theft. If it’s a mistake and they fix it, it’s a payroll error.

What is wage theft?

Wage theft is when an employer makes a conscious decision to pay staff less than they're entitled to. It’s not an accident, and it's not a one-off payroll error.

As of 1 January 2025, wage theft is a criminal offence nationwide. Employers who deliberately underpay their workers can face severe penalties. This can include up to 10 years in prison and millions of dollars in fines for companies.

Wage theft happens in all kinds of industries. But it's particularly common in jobs where people rely on penalty rates or don’t know their rights. These jobs often include those in hospitality, retail, cleaning, and construction. 

Some businesses commit wage theft to save money. And they do it hoping nobody will notice. Other businesses do it because they think they can outsmart the system. But when they get caught (and they probably will eventually), the consequences can be huge. Wage theft can lead to big fines and backpay orders. It can be considered a criminal offence and can even result in jail time.

Here are some of the most common ways employers commit wage theft:

Underpaying award rates

Every worker whose employment falls under a Modern Award has a legal right to a set minimum hourly wage. Those not under an award have a legal right to Australia's national minimum wage. Paying them anything less than that can be considered wage theft.

Example: A restaurant hires a junior waiter who's 18 years old. The restaurant owner pays them $14.00 an hour. But under the Restaurant Industry Award, an 18-year-old Level 1 food and beverage attendant should be getting a minimum of $16.87 per hour. The restaurant owner is well aware of this. But they keep paying the lower rate because the junior waiter doesn’t ever question it. While it may seem like just a few dollars, over time, that missing money adds up. It’s wage theft, whichever way you look at it.

Not paying overtime or penalty rates

If an employee has a right to overtime or penalty rates (like higher pay on weekends or public holidays), the employer has to pay it. Ignoring these extra rates and just paying the standard hourly wage instead is wage theft.

Example: A supermarket has staff working on Sundays. But, on these days, they still pay them their usual Monday to Friday rate. Under the General Retail Award, Sunday rates should be higher. The employer knows this but keeps quiet about it, pocketing the difference.

Not paying superannuation

Super isn’t a bonus. It’s not optional. Employers must pay superannuation on top of their employees’ wages. Right now, the super guarantee is 11.5% of an employee’s ordinary earnings. And an employer is to pay it into their nominated super fund at least four times a year.

But some businesses try to cut corners. Some don’t pay super at all. Others pay it late so they can hold on to the cash longer. All of the above counts as wage theft.

Example: A construction worker checks their super balance and realises their boss hasn’t made any superannuation contributions in over a year. The company’s been keeping the money instead of sending it to their nominated super fund. That’s wage theft, and the worker is now owed thousands in unpaid super.

Misclassifying employees as contractors

Some businesses label workers as contractors instead of employees. And while sometimes this is a mistake, sometimes it's a tactic to dodge award wages, super contributions, or the allocation of paid leave. But if someone works regular hours, uses the company’s equipment, and reports to a boss, they’re probably an employee. Misclassifying them to save money is wage theft.

Example: A cleaning company hires full-time workers but calls them 'contractors'. They do this so they don’t have to pay super contributions or annual leave. The workers wear company uniforms, follow company schedules, and use company equipment. They’re not real contractors. Consequently, they’re missing out on entitlements they should be getting.

Deducting pay unfairly

Taking money out of an employee’s pay for things like breakages, cash register shortages, or mistakes is illegal. The only time it's justifiable is if the worker agrees in writing and the deduction is reasonable. Docking wages without consent is wage theft.

Example: A fast-food manager tells staff they have to pay for any drive-thru mistakes out of their own wages. A worker loses $50 from their pay because they packed the wrong order by mistake. They never agreed to the deduction, so it counts as wage theft.

What happens if a business commits wage theft?

If a business underpays staff on purpose, or refuses to pay things like super or penalty rates, they can get hit with massive fines, legal action, and even criminal prosecution.

And it’s not just big corporations that need to be worried. Small businesses, franchises, and even family-run cafes have been caught out. The FWO doesn't mess around when it comes to wage theft. Neither do the state governments, unions, and the Australian Federal Police (AFD).

Below, you can explore the kinds of consequences associated with a wage theft offence:

Public investigations and Fair Work Ombudsman audits

Wage theft hardly ever flies under the radar. The FWO is extremely active in investigating businesses suspected of underpaying staff. This is especially true in high-risk industries like hospitality, retail, cleaning, and labour hire, where underpayment is more common.

If a business gets reported, the FWO can:

• conduct random audits to check payroll records
• order businesses to hand over payslips, timesheets, and contracts
• interview employees to confirm underpayments

Once the FWO gets involved, it’s a long process. Businesses can expect months of audits, legal fees, and endless paperwork. Instead of focusing on running the business, owners and managers will be dealing with investigators, lawyers, and potential backpay calculations.

Even if wage theft wasn’t on purpose, a business that fails an FWO audit is at serious risk of fines, legal action, and reputational damage.

Criminal charges and potential jail time

Wage theft isn’t just a slap-on-the-wrist offence anymore. As of the beginning of this year, it’s a criminal offence across Australia. That means that employers who underpay their workers on purpose can now face jail time, not just fines.

Here's a bit about how it works:

• In Victoria, anyone caught dishonestly underpaying their staff can go to prison for up to 10 years.
• In Queensland, wage theft has actually been classed as criminal fraud since 2020. That means employers who deliberately withhold wages, super, or entitlements can be charged and face jail time.
• Everywhere else, wage theft is now officially a criminal offence too, thanks to new federal laws under the Fair Work Act.

Before this, the Fair Work Ombudsman could investigate underpayments and hit businesses with civil penalties—basically big fines. That still happens, but now, owners and managers can be criminally prosecuted too.

And authorities are cracking down. The Australian Federal Police is involved, and the Fair Work Ombudsman has more power to go after dodgy employers than ever.

Financial penalties and fines

Employers who deliberately short change their staff can face serious financial consequences. Under the Fair Work Act 2009, the penalties for wage theft are quite significant. The exact financial penalty depends on who's responsible and how serious the underpayment is. For example:

For individuals

• Standard contraventions: An individual can be fined up to $19,800 per breach.
• Serious contraventions: If the breach is considered serious, the fine can increase to $198,000 per breach.

For companies with fewer than 15 employees

• Standard contraventions: Fines can reach up to $99,000 per breach.
• Serious contraventions: For serious breaches, the penalty can be as high as $990,000 per breach.

For companies with 15 or more employees

• Standard contraventions: The fine can be the greater of $495,000 per breach or three times the amount of the underpayment.
• Serious contraventions: Penalties can escalate to the greater of $4,950,000 per breach or three times the underpaid amount.

And these fines don't work on a one per business basis. Each underpaid worker is a separate breach. So, the fines can become massive pretty quickly. Sometimes, businesses end up paying millions in fines.

Mandatory backpay and compensation orders

If a business messes around with their workers' pay, the repercussions don't stop at fines. They must pay back every cent, plus interest. The Fair Work Ombudsman will typically issue a Compliance Notice. This basically gives businesses a deadline to backpay workers. If they ignore it, the financial penalties get even bigger.

Courts can also order backpay and additional compensation, including:

• unpaid wages, covering the full shortfall
• interest on backpay, to make up for lost earnings
• extra financial penalties if the underpayment was deliberate

For businesses that have underpaid staff for months or years, these repayments can quickly add up to hundreds of thousands of dollars.

Union and employee legal action

If the FWO doesn’t step in first, an underpaid worker or an entire group of employees can take their employer to court. And if a union gets involved, things can get even messier.

Employees (or their union reps) can:

• file legal claims to recover unpaid wages, penalty rates, and superannuation
• push for extra compensation if they’ve suffered financial hardship due to missing wages
• sue for breaches of the Fair Work Act

And employers can't just ignore these claims. If a worker wins their case, the business must pay back every dollar, cover interest, and potentially pay legal costs too. In some cases, wage theft legal action forces businesses to liquidate or shut down because the amount of compensation owed is just too big.

Disqualification from government contracts

Government contracts generally come with a very strict set of rules. Businesses that get caught underpaying workers can be banned from applying for or keeping government work.

For example, under the Commonwealth Procurement Rules, companies bidding for federal contracts must meet workplace laws. This includes paying wages and super properly. If they breach the Fair Work Act or have a history of wage theft offences, they can lose their contracts or be barred from future tenders.

This is a big deal for industries that rely on government work, like:

• cleaning and security (common government outsourcing contracts)
• construction (major government infrastructure projects)
• aged care and disability services (where funding often comes from government grants)

Reputational damage and loss of business

Getting busted for wage theft goes far beyond dealing with legal trouble and fines. Once a business is exposed for underpaying staff, its reputation tanks fast. And it’s almost impossible to recover.

Here are a few things that are likely to happen when a wage theft case goes public:

• media outlets publish scathing headlines
• customers boycott the business
• social media explodes with negative comments
• investors pull out, seeing the company as too risky

And it’s not just big brands that suffer. Smaller businesses can collapse overnight from bad press alone. Many businesses never recover. Even if they somehow avoid criminal prosecution or massive fines, once word gets out that they stole from their employees, their reputation is gone.

What are payroll mistakes?

Sometimes, businesses genuinely make payroll mistakes. And that’s a very different thing to wage theft.

A payroll mistake is when a business underpays (or even overpays) a worker by accident. It’s not on purpose, and as soon as it’s spotted, the business fixes it.

Payroll mistakes can happen for a few reasons:

• using the wrong pay rate under an award
• forgetting to apply penalty rates for weekends or overtime
• payroll software not being updated after wage increases
• tax or super calculation errors
• mixing up employee classifications

Mistakes still break the law. So, businesses have to fix them ASAP. But intent definitely comes into play. If an employer fixes the error as soon as they find it, it’s not wage theft.

Common payroll mistakes

Payroll in Australia is very complicated. There are more than 100 Modern Awards, and wage rates change all the time. Even businesses that try their best sometimes get it wrong. Below, ,you can explore some of the most common payroll mistakes and how they happen:

Miscalculating pay under Modern Awards

Modern Awards mandate the minimum amount an employer must pay a worker in various jobs. But awards are complex and change all the time. So, it can be hard for businesses to understand and keep up with them. Some businesses misread the award or apply the wrong pay level. Others forget or are unaware of when annual wage increases kick in.

Example: A small law firm pays its junior legal assistants $25 per hour. They genuinely believe this meets award conditions. But under the Legal Services Award, the correct minimum rate for a Level 1 adult employee is actually $26.05 per hour. The owner of the law firm isn’t underpaying on purpose. They just haven’t checked the latest pay tables. The mistake only comes to light when an employee queries their payslip.

Incorrectly classifying employees

Some businesses accidentally mix up employees and contractors or full-time, part-time, and casual workers. The wrong classification means the wrong pay, leave, or super entitlements.

Example: A retail store hires a worker as a casual employee. They pay them $32 an hour with no leave entitlements. But the worker actually works set shifts every week. This means they should be part-time and getting paid leave. The store isn’t trying to dodge leave pay. They just assumed casual was the right classification.

Failing to update payroll software for award wage changes

Modern Award wages increase every July. If a business doesn’t update their payroll system accordingly, they’ll keep paying the old rates. And this means they’re underpaying staff, albeit without realising.

Example: A disability care provider follows the Health Professionals and Support Services Award to pay their workers. But in July, a new award pay increase comes into effect. Their payroll system doesn’t update automatically. So, they keep paying the old rate. The workers are now underpaid, even though the employer hasn’t meant to do anything wrong.

Errors in superannuation contributions or tax deductions

Super must be paid on ordinary time earnings (OTE). This includes base salary, commissions, and most allowances. But some businesses leave out certain earnings by mistake or simply make calculation errors. This means workers miss out on money that’s legally theirs.

Example: A construction company hires a new full-time site supervisor on a $90,000 annual salary. But when setting up payroll, the finance team accidentally enters $80,000 as the worker’s superannuation base. Instead of calculating 11.5% super on the full $90,000, they calculate it on the incorrect lower amount.

Failing to account for leave entitlements correctly

Annual, personal, and long service leave all have different rules. And payroll mistakes in this area can leave employees receiving less than they have a right to. Common errors include miscalculating leave accruals and paying out leave at the wrong rate. Sometimes a business may also fail to adjust entitlements when a casual employee becomes permanent. Long service leave is also tricky, because the rules for this kind of leave varies between states.

Example: A full-time property manager works for a real estate agency under the Real Estate Industry Award and earns $70,000 per year. After two years, they take three weeks of annual leave. When their next payslip arrives, they notice they’ve only been paid for two weeks instead of three. This is because the payroll system wasn’t properly tracking their leave accruals. Their employer was unaware and didn’t check this before processing payroll.

Implications of payroll mistakes

Even though payroll mistakes are unintentional, they still have consequences. Businesses have a legal obligation to pay their people correctly. And if they mess up, even by accident, they have a responsibility to fix it. The longer errors go unnoticed, the worse the consequences can be. Below are some of the biggest risks businesses face when payroll mistakes happen:

Fair Work Ombudsman investigations and fines

If an employee notices that they haven't received the correct amount of pay, they can report it to the FWO. Once that happens, the business is on the FWO’s radar. The FWO may:

• investigate payroll records to check for underpayments
• issue compliance notices ordering the business to fix the mistake and backpay workers
• impose fines if the mistake is widespread or if the business ignored previous warnings

Even if a business didn’t mean to underpay, the FWO still expects them to fix it. And they expect them to fix it fast. If they don’t, it can escalate to legal action.

Breaches of the Fair Work Act 2009

The Fair Work Act 2009 sets Australia’s workplace laws. These include the national minimum wage, leave entitlements, and superannuation rules. Payroll mistakes that lead to underpayments count as breaches of the Act. Breaches can result in:

• court orders requiring the business to backpay workers
• fines per violation (which add up quickly if multiple employees are affected)
• legal action if the business repeatedly fails to fix mistakes

It doesn’t matter if it was an accident. Employers have a legal duty to pay staff correctly.

Superannuation Guarantee Non-Compliance (ATO Fines)

Superannuation mistakes can be expensive. The ATO takes unpaid or late super payments very seriously. If a business doesn't pay the correct amount of super (even by mistake), the ATO can:

• charge the business the unpaid super, plus interest and admin fees
• apply the Superannuation Guarantee Charge (SGC), which means no tax deduction on late payments, plus interest and admin fees
• audit the business for further payroll errors

Employers are bound by law to pay super on time and in full. Something as simple as a payroll error can lead to thousands in penalties, intention aside.

Reputational and operational consequences

Getting payroll wrong is bad for businesses. Even when it's a mistake. Here are some of the things that can happen when payroll mistakes get out:

• Bad press: no business wants headlines about underpaying workers
• Hiring struggles: job seekers avoid businesses known for payroll problems
• Lost customers: people don’t want to support businesses that don’t pay staff properly

Even small payroll mistakes can damage trust with employees. If staff feel undervalued or underpaid, the chances of them leaving, complaining, or even taking legal action become far greater.

Preventing wage theft and payroll mistakes

Mistakes happen. But, as you can see, when it comes to payroll, even an innocent error can turn into a legal and financial nightmare. The good news? You can prevent most payroll issues with a little help from the right systems and processes. Below, you can explore some practical steps to take that can help you avoid underpayment issues in your business:

Ensure compliance with Modern Awards and EBAs

Modern Awards and Enterprise Bargaining Agreements (EBAs) outline the minimum pay and conditions for employees in different industries. There's no denying that keeping up can be a challenge. But it’s non-negotiable. Here are some things you should do:

• identify the correct Modern Award for every employee
• check for annual wage increases (typically in July)
• understand penalty rates, overtime, and entitlements specific to the Awards you're dealing with
• if using an EBA, make sure it complies with the Fair Work Act and meets or exceeds Award conditions

Pro tip: Don’t rely on outdated pay guides. Always check the Fair Work Ombudsman’s website or get professional payroll advice before running payroll.

Adopt payroll automation and integrated HR systems

Processing payroll manually is a recipe for mistakes. Typos, outdated spreadsheets, or miscalculations can all lead to paying your staff less than you need to. Automated payroll software eliminates human error. It ensures the correct calculation of wages every pay cycle. Here are some things to consider:

• Use payroll software that updates automatically when Modern Award rates change.
• Integrate payroll with your HR systems to track hours, leave, and entitlements in real time.
• Set up automated super payments to avoid late contributions.
• Use digital timesheets instead of relying on paper records.

Pro tip: Choose payroll software that syncs with the ATO’s Single Touch Payroll (STP) system. This can be amazing for simplifying tax and super reporting.

Conduct regular payroll audits and compliance checks

Even if a business has a very effective payroll system in place, mistakes can still slip through the cracks. By regularly conducting audits on your payroll, you can catch issues before they turn into expensive legal problems. Here's what you should do:

• Review payslips, timesheets, and payroll records every few months.
• Double-check that you're paying penalty rates and overtime correctly.
• Audit super payments to ensure you're paying them on time and in full.
• Get an independent payroll audit from an accountant or HR consultant if you need help.

Pro tip: If you come across an underpayment, fix it fast. The longer it goes unpaid, the bigger the risk of civil penalties, fines, or even legal action.

Train HR teams

Payroll compliance doesn't just concern finance teams. HR managers, business owners, and payroll staff all need to understand how wage laws, entitlements, and Modern Awards work. Make sure that you:

• Provide ongoing training on Fair Work laws, payroll compliance, and wage rates.
• Teach managers how to classify employees correctly (full-time, part-time, casual, or contractor).
• Educate payroll teams on Award conditions, penalty rates, and overtime rules.
• Keep up with new laws affecting wage compliance.

Pro tip: Consider setting up a process where payroll staff check Fair Work updates every six months. Laws change often, and doing this can help your business stay up to date.

Implement reporting mechanisms

Even with the best payroll system in place, employees should have a way to flag underpayments. Some workers don’t realise they’ve been underpaid. Others might feel uncomfortable bringing it up. Having a clear reporting process can help your business fix any issues before they escalate. Below, you can find some considerations:

• Create a system whereby employees can raise payroll concerns anonymously.
• Encourage employees to check their payslips and raise any issues.
• Set up a process where HR or payroll teams investigate complaints quickly.
• Keep records of any payroll disputes and how you resolved them.

Pro tip: If an employee complains about underpayment, be proactive in your response and approach to resolution. Even if it’s just a payroll mistake, failing to address it could lead to FWO involvement.

H2: Get payroll right with Rippling

Payroll errors, even when they're mistakes, can lead to serious problems. For example, compliance issues, fines, and even legal trouble. And with Australia's super complex payroll system, it’s not exactly hard for businesses to slip up. They have to keep up with Modern Award rates, make super contributions on time, and make sure tax deductions are right. With all of this to stay on top of, running payroll manually or with outdated software is a disaster waiting to happen.

Enter Rippling Payroll. More than just a payroll system, it’s part of an all-in-one workforce management platform, built on a single source of truth. HR, Payroll, Spend, and IT are fully connected. That means the disconnect that often leads to payroll mistakes is eliminated.

With Rippling, you can run payroll in 90 seconds and tackle compliance with award rates, superannuation, and tax laws with confidence. Rippling takes the manual work out of payroll by automating some of the most complex parts of the process:

Pays the correct wages

Rippling syncs payroll with HR and time tracking. So, pay rates, penalty rates, and entitlements automatically adjust when laws change or employee details are updated. No more miscalculations or forgotten pay increases.

Calculates leave entitlements accurately

Annual leave, personal leave, and long service leave sync directly from HR records. So, employees always receive their correct entitlements.

Supports Modern Award compliance for eligible awards

Keeping up with Modern Award pay rates, penalty rates, and allowances is one of the biggest payroll challenges for Australian businesses. With Rippling, you can automatically apply the appropriate base pay, overtime, and allowances for supported Modern Awards.

Handles tax withholding and reporting effortlessly

Rippling automates PAYG withholding, payroll tax, and STP reporting to the ATO. This means you don’t have to worry about missed lodgements or incorrect deductions.

One platform, one system, no errors

Because Rippling is built on a single source of truth, payroll pulls directly from HR, Spend, and IT data. That means no double data entry, no manual errors, and no outdated information slipping through the cracks.

Wage theft FAQs

What is the most common form of wage theft?

The most common way businesses steal wages is by underpaying award rates. Employers either ignore penalty rates, miscalculate overtime, or flat-out pay less than the Modern Award requires. Some also classify employees as independent contractors when they’re really not. They do this so they can get out of paying employee entitlements like super and leave.

Superannuation non-payment is another huge and quite common issue. Some businesses skip super payments altogether or pay late to hold onto the money longer.

Who is liable for wage theft?

Business owners, directors, and managers who underpay staff on purpose can be held personally responsible for wage theft. If they get caught, they can face criminal penalties, including massive fines and even jail time.

And it’s not just owners, directors, and managers at risk. HR staff, accountants, and even franchise operators can also get in trouble if they’re involved in dodgy payroll practices.

Who is most affected by wage theft?

Wage theft typically hits casual workers, young workers, and migrant workers the hardest. These are the people who often don’t know their rights or feel too scared to speak up. Industries like hospitality, retail, cleaning, and construction see a lot of wage theft. This is largely because they rely on penalty rates and overtime, which some businesses conveniently 'forget' to pay.

Workers paid cash-in-hand are also at risk. If an employer is paying cash but not giving payslips or paying super, that’s usually a red flag for wage theft.

Is paying employees in cash illegal in Australia?

No, paying employees in cash isn’t illegal. But not doing it properly absolutely is. If you’re paying staff in cash, you still have to withhold tax, pay super, and provide payslips. There’s no shortcut around that.

Some businesses think paying cash means they can skip tax or avoid super payments. That’s wage theft, and if Fair Work or the ATO catches you, you’ll be looking at massive fines, backpay orders, and possibly criminal penalties.

Another mistake? Not keeping proper records. If an employee ever claims they weren’t paid correctly and you don’t have the paperwork to prove otherwise, you’re in serious trouble. The law assumes the worker is right unless you can prove otherwise.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.