The Fair Work Ombudsman Recovered $509 Million in Underpayments — Is Your Business Exposed?

Estimated read time: 7 minutes · Last updated April 2026

In 2022-23, the Fair Work Ombudsman recovered $509 million in unpaid wages for 251,475 workers. That is the largest recovery year on record, and the 2022-23 Annual Report makes clear that small and medium businesses are a significant share of where the money came from.

If you run a small business with employees in hospitality, retail, construction or allied health, the honest answer to “could that be me” is usually “yes, partially.” Most underpayment isn’t deliberate. It is the gap between what your payroll software says and what the correct award says, compounded quietly over years.

Here is how underpayment investigations actually start, what happens when one lands on your desk, and what protection is available if you act early.

How FWO investigations begin

There are three main triggers. Each one is worth understanding because they behave differently.

• Anonymous tip-offs. The FWO’s anonymous tip-off form is the single largest source of leads. Tips come from current staff, ex-staff, partners of staff, and sometimes competitors. You will not be told when one is made.
• Proactive industry campaigns. The FWO picks sectors and geographies each year and audits businesses in them. Hospitality and retail — especially cafés, restaurants and fast food — are named repeatedly as priority sectors.
• Formal complaints. A current or former employee lodges a claim. This is slower to escalate but tends to produce larger recoveries because the complainant has already gathered evidence.

Audits almost always start with a request for records: pay slips, timesheets, employment contracts, classifications, leave balances. If you cannot produce them, the FWO can draw unfavourable inferences. That is why record-keeping is the first line of defence, not the last.

What happens in an audit

A typical small-business audit runs along these lines. The FWO writes to you with a notice to produce records. You have a fixed window to comply. An inspector reviews the records and calculates what should have been paid against what was paid. If there is a shortfall, the inspector issues findings and sets a remediation timeline.

From there, outcomes vary widely based on cooperation, scale and whether the conduct looks intentional:

• Self-correction with back-pay, no further action.
• Compliance notice or enforceable undertaking — legally binding commitments to fix the issue and improve processes.
• Civil litigation for penalties on top of back-pay.
• Referral for criminal prosecution where the underpayment was intentional.

The new criminal offence

Since 1 January 2025, intentionally underpaying wages is a criminal offence under the Closing Loopholes reforms. The FWO news release confirming the start date sets out the penalty framework: fines, imprisonment, or both for individuals and companies.

This is reserved for deliberate conduct — owners who knew they were underpaying and chose not to fix it. Genuine mistakes are still a civil matter. But the line between “mistake” and “should have known” is not as generous as owners assume, which is why the Voluntary Code below matters.

Civil penalties: up to $495,000 per contravention

Since 27 February 2024, the civil penalty for an underpayment contravention is up to $495,000 per contravention for an individual, or the greater of $495,000 and three times the underpayment. For serious contraventions the maximum rises to $4,950,000. These figures are set out on the FWO’s litigation page and in the criminalising wage underpayments information.

“Per contravention” is important. A single pay cycle with five underpaid staff can give rise to multiple contraventions. The multiplier is what turns a small monthly underpayment into a catastrophic total.

Your best protection: the Voluntary Small Business Wage Compliance Code

The Voluntary Small Business Wage Compliance Code exists specifically so owners who are trying to get it right are not swept up in the criminal regime. If you comply with the Code, any underpayment that is later identified cannot be referred for criminal prosecution.

The Code asks for evidence that you:

• Know which Modern Award applies and have classified staff correctly.
• Use the FWO pay calculator or an equivalent source to set rates.
• Have systems for penalty rates, overtime and allowances.
• Keep accurate records and reissue corrected pay slips when errors are found.
• Respond promptly when you discover a shortfall.

None of these are impossible. Most owners do several of them already. The missing piece is usually the documentation that proves it — which is what an audit tests.

Three things to do this week

• Check the right award. Use Find my award as if you were setting up the business today. Awards evolve and your primary activity may have shifted.
• Re-run the pay calculator. For each employee, based on their current duties. If the number doesn’t match what they are being paid, you have a problem to fix.
• Document everything. Write a one-page file note for each role: award, classification, rate, date checked, source used. That file note is your Voluntary Code evidence.

The bottom line

$509 million in recoveries was not an accident. It reflects the FWO’s continuing focus on small business sectors where awards are complex and owners run payroll themselves. You don’t protect yourself by being quiet and hoping — you protect yourself by doing the check before somebody else does it for you.

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