The powers of the Fair Work Ombudsman and how to avoid underpaying employees

There have been a number of recent cases of the Fair Work Ombudsman (FWO) cracking down on organisations underpaying employees. For example – in 2018, the FWO dished out more than $192,000 in penalties to former 7-Eleven operators who underpaid vulnerable workers.

Additionally, the FWO alleged in 2021 that Woolworths Group Limited underpaid 70 employees a total of $1,172,282 between 2018 and 2019. Despite back-payments, the FWO alleges that a total of $713,395 of underpayments still remains outstanding.

Despite the increased awareness of the seriousness of underpayments, many employers are still failing to get the fundamentals right in terms of when employees are entitled to overtime rates, weekend and public holiday penalty rates, meal allowances and annual leave.

Most common mistake?  Employers thinking their employees are not covered by an Award because they’re paid well above the Award rates and/or on a salary.

Often employers (both large and small) are under the assumption that they are correctly paying their employees based on a flat rate, when in fact they are not paying the correct award rate let alone the correct classification of award. With over 100 different industry and occupation awards in existence in Australia alone which are also constantly changing, it can be easy to get it wrong. However this is not likely to be an excuse accepted by the FWO.

Based on the increased number of underpayment cases, the FWO has announced the regulator’s strategic priorities for 2022 – 2023 as per the following;

  • Compliance notices being the preferred enforcement mechanism
  • Investigating underpayments is a key focus in vulnerable sectors (for example fast food, restaurants, cafes and agriculture)
  • Undertaking annual surveys to assess the positive impact on harmonious, productive, cooperative and compliant workplace relations with a KPI of greater than 75% satisfaction

With these priorities in sharp focus for the FWO, it’s important for employers to understand the powers that the FWO has to enact these priorities. Employers also need to be aware of the enforcement outcomes a business can face if underpayment of wages is found to have occurred.

Investigative powers of the FWO

Fair Work Inspectors are government officials appointed by the FWO under the Fair Work Act 2009. The Act gives Inspectors certain powers to perform their role to promote and monitor compliance with relevant Commonwealth workplace laws.

A Fair Work Inspector may exercise one or more of the following powers whilst conducting an investigation;

  • Enter a business premises – inspect any work, process or object
  • Interview anyone (with their consent)
  • Require a person to tell them who has or who can access a record or document
  • Require the person with access to a record or document to hand it over while the inspector is on the premises or within a specific time frame
  • Inspect and make copies of any record or document kept on the premises (including in hardcopy or accessible from a computer)

How to best deal with FWO inspectors

In the event that your business is subject to a FWO investigation, you’ll need to be aware of your rights and responsibilities.

The FW Act prohibits a person from intentionally hindering or obstructing a Fair Work Inspector. However you are entitled to ask an investigator what they are investigating, under what law and what industrial instrument.

Failure to comply with a notice to produce requested documents can lead to penalties of up to $66,600 for businesses and up to $13,320 for individuals whereas failure to comply with a FWO notice to answer questions/provide information can result in fines of up to $133,200. Obviously no business or manager wants to have to face these costly fines.

If your business does face an inquiry from a Fair Work Inspector, there are some golden rules you can follow to help you through the process.

Tips for responding to a request for information or interview

  • Require warning to be given and identification shown
  • Be alert to the investigators – avoid ‘chit-chat’
  • Where information is provided voluntarily, indemnity does not apply and information can be used against the person
  • Ask the inspector to exercise his/her powers
  • Escalate internally and consider if legal representation is required

Tips for interview conduct

  • Listen to the questions carefully
  • Ask for them to be repeated if confusing
  • Limit initial responses to first hand evidence
  • Avoid speculation or hypothesis
  • Always tell the truth – serious penalties apply for false and misleading information
  • Be aware that information can be misleading by omission

Enforcement outcomes

The FWO has several statutory enforcement tools available to enact in cases of serious non-compliance and for matters considered to be in the public interest. This of course applies to cases of employee underpayment. Enforcement options include:

  1. Assessment Letters – notification at the end of an investigation or inquiry which states that no contraventions were identified or there was insufficient evidence to find otherwise.
  2. Contravention Letters – notification of failure to observe requirements imposed by the Fair Work Act. Depending on the nature of the contraventions and the person’s response to the Contravention Letter, the FWO may decide to pursue one of the following enforcement mechanisms.
  3. Compliance Notices – these formally require a person to take specific action to fix alleged entitlement-based breaches of the Fair Work Act. Failure to comply with compliance notices may result in fines of up to $33,200 for organisations and $6,600 for individuals.
  4. Infringement Notices – these are on-the-spot fines issued to employers for breaching record-keeping and pay slip requirements. Penalties for companies can be up to $6,600 and $1,332 for individuals.
  5. Enforceable Undertakings – these are court-enforcement, legally binding arrangements where employers must admit liability, express contrition, agree to fix any breaches and commit to ongoing compliance. In most cases, employers are required to pay outstanding wages and entitlements including any interest.
  6. Prosecution – litigation is reserved for the most serious cases of non-compliance. The FWO will seek to litigate matters where obtaining court orders will stop people from engaging in unlawful behaviour and will send a powerful public message to others not to engage in similar conduct. Serious contraventions can result in penalties of $666,000 for companies and $133,200 for individuals.

No employer wants to face a FWO investigation, let alone be subject to stressful and costly enforcement outcomes. Let’s look at how such situations can be avoided in the first place.

How can employers ensure they are correctly paying their employees?

Proactive compliance is really the only way for businesses to avoid instances of employee underpayment.

Tips for enacting proactive compliance include;

  • Have HR and payroll proactively review industrial instruments on a regular basis
  • Consider impacts of employee transfers within a business – e.g. ensure leave accruals are carried across
  • Conduct a broad review to capture unknown issues
  • Outsource payroll if your business doesn’t have adequate internal resources
  • Clearly determine whether every employee is an award covered employee or an award free employee so that appropriate pay and entitlements are given
  • Use the “Find My Award” tool on the FWO website
  • Consult with external HR/legal professionals

What happens if your business uncovers instances of underpayment?

Self-disclosure to the FWO is encouraged in such cases as it can be looked upon favourably by investigators. However, be aware that this does not absolve your business from any repercussions.

An isolated instance of underpaying an employee over a short period of time most likely does not need to be actively reported, provided it is quickly rectified and the employee is satisfied with the outcome.

In cases of broader and systemic non-compliance, it is best to notify the FWO as soon as possible to request guidance. Self-reporting can justify the FWO’s use of non-litigious and non-punitive compliance tools.

How Harrisons is able to help?  We offer a comprehensive Award and Payroll Audit service.

It’s best to seek professional guidance in the event that a case of underpayment is found within your business. For advice, talk to the experts at Harrisons today.



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