Am I Paying My Staff Correctly? A Plain-English Guide for Australian Small Business

Estimated read time: 8 minutes · Last updated April 2026

Since 1 January 2025, intentionally underpaying staff has been a criminal offence in Australia. The civil penalty for a single contravention is up to $495,000 for an individual, or the greater of $495,000 and three times the underpayment. That is per contravention — not per business, not per year.

Most owners we speak to aren’t worried about intent. They are worried about the other problem: that they are underpaying staff right now without knowing it, because they picked the wrong Modern Award five years ago and never revisited it. That is also the most common reason the Fair Work Ombudsman recovers money from small businesses.

This guide walks you through the self-check in plain English, with links to the pages on fairwork.gov.au you actually need.

The six mistakes that cause most underpayments

Before you open a pay calculator, it helps to know what you are looking for. These are the errors the Fair Work Ombudsman sees repeatedly in small business cases:

• Wrong award. A coffee shop that also sells groceries might be under the Restaurant Award, the Hospitality Award, or the Retail Award depending on its main activity. Pick wrong and every rate is wrong.
• Wrong classification within the award. A level 2 food and beverage attendant is paid differently from a level 3. Moving staff up a level when their duties change is your job, not theirs.
• Missed penalty rates. Saturday, Sunday, late-night and public holiday rates differ by award. Hard-coding a flat weekday rate into your payroll means you will underpay every weekend.
• Missed allowances. Laundry, tools, first aid, meal allowances — these are in most awards and are easy to miss.
• Under-paid casual loading. Casuals are paid a loading on top of the base rate in place of paid leave. It is set by the award, not by you.
• Record-keeping gaps. If you can’t produce pay slips and timesheets showing how each rate was calculated, the FWO can infer underpayment.

Step 1: confirm which Modern Award applies

Start with the Find my award tool. Put in what your business actually does day to day, not what your company name suggests. If you are a café that also caters functions, the primary activity matters.

Three of the most common small-business awards have plain-English summary pages worth reading end to end:

• Hospitality Industry (General) Award summary
• Restaurant Industry Award summary
• General Retail Industry Award summary

If you think two awards might apply, read both summaries. Do not guess.

Step 2: classify each employee correctly

Every award has levels. The level you pay someone at depends on their duties and, in some awards, their experience or qualifications. Read the classification schedule in your award — it is usually the longest and most boring part of the document, and it is exactly where underpayments hide.

A practical test: write down each employee’s actual duties, then find the classification level whose description most closely matches. If their duties have changed since they started, their classification may need to move up. You do the reclassification; the employee doesn’t have to ask.

Step 3: check the rate with the FWO pay calculator

The Fair Work pay calculator takes the award, classification, age, and employment type and returns the current base rate plus applicable loadings and penalty rates. Run it for each employee.

Don’t copy the number into your payroll and walk away. Pay rates change — usually every 1 July following the Annual Wage Review. Write a reminder to re-run this check on 1 July each year. The minimum wages page and the pay guides are where the rate changes are published.

Step 4: apply penalty rates and allowances

Penalty rates apply to weekends, public holidays, early starts, late finishes and overtime depending on the award. The penalty rates hub and the specific public holiday penalty rates page are the primary sources. Do not trust a third-party summary — rates are set by each award and summarised by the FWO.

Allowances are equally easy to miss. The allowances page lists common categories. If your staff launder their own uniforms or supply their own tools, you almost certainly owe an allowance.

Step 5: record-keeping

Even if every rate is right, missing timesheets or pay slips can cost you. The FWO can issue infringement notices for record-keeping failures alone. Every pay slip should show the hours worked, the rate, the loadings and allowances paid, and any deductions. Keep timesheets for at least seven years.

Step 6: know the Voluntary Small Business Wage Compliance Code

Since wage underpayment became a criminal offence on 1 January 2025, there is also a dedicated protection for small businesses that act in good faith. The Voluntary Small Business Wage Compliance Code sets out what “reasonable steps” look like. If you follow it, an underpayment that later emerges cannot be referred for criminal prosecution.

The Code is not a silver bullet, but it is the closest thing Australian employment law has to a roadmap for a small business trying to do the right thing. Read it once, document how you meet each element, and file that document somewhere you can find it.

What to do if you find an underpayment

First, don’t panic — but don’t wait. Calculate the shortfall, back-pay the affected employees, and document what you did and when. The criminal provisions that commenced 1 January 2025 apply to intentional underpayment. Self-correcting after discovering an error is the opposite of intent.

If the numbers are large, or you are not sure how to calculate leave loadings or long-service amounts on top of the shortfall, bring in your accountant or payroll specialist. Getting the fix wrong is almost as expensive as the original underpayment.

The bottom line

Most small-business underpayments are not fraud. They are the accumulated result of picking the wrong award, missing a classification move, and not re-running the pay calculator after 1 July. Fix those three things and you eliminate the majority of your exposure.

Disclaimer: This is general compliance guidance, not legal advice.