Underpayment Remediation in Construction

What it is

You have found an underpayment. Maybe the industry allowance never went into the overtime rate, or the annual leave loading never got paid out at termination. What you do next decides whether this is a back-payment or a prosecution.

The good news first. The criminal offence requires intention. An honest mistake is not a crime. The Fair Work Ombudsman says so directly: intentional underpayment of wages or entitlements can be a criminal offence, and this "doesn't include honest mistakes".

The criminal offence

Since 1 January 2025, section 327A of the Fair Work Act 2009 (Cth) makes it an offence where an employer must pay an amount to or for an employee under the Act or a fair work instrument, and "engages in conduct" that results in a failure to pay it in full on or before the day it is due.

The fault elements are the whole ball game. Section 327A(3) applies absolute liability to the existence of the obligation, but the fault element for the conduct and its result is intention. You cannot accidentally commit this offence. You can accidentally commit a very expensive civil contravention, and that is the real risk for most builders.

The penalties, where it does bite, are serious. An individual faces up to 10 years imprisonment or a fine of the greater of 3 times the underpayment and 5,000 penalty units. A body corporate faces the greater of 3 times the underpayment and 25,000 penalty units. A penalty unit is $364 for offences committed on or after 1 July 2026, so those caps are $1.82 million and $9.1 million.

The small business code

The Voluntary Small Business Wage Compliance Code Declaration 2024 was registered on 16 December 2024, which allowed the offence to commence on 1 January 2025.

What it does: a small business employer, meaning fewer than 15 employees, cannot be referred for criminal prosecution if the Ombudsman is satisfied they complied with the Code. It does not touch civil liability: you still owe the money and can still be penalised.

The Code's spine is its first requirement, that the failure to pay must not be intentional. It then weighs how you ascertained correct rates, how you stayed up to date, whether you used reliable advice, what you did to rectify it, and how you became aware of it.

If you are not a small business, the shelter is a cooperation agreement: disclose voluntarily and the Ombudsman can agree not to refer the conduct.

Civil penalties, the likelier risk

• For underpayment contraventions by a non-small business, the maximum can be the greater of 3 times the value of the underpayment and the relevant penalty unit amount.
• Maximum penalties for selected civil remedy contraventions by a business with 15 or more employees increased 5 times from 27 February 2024. Those cover the NES, award obligations, and pay slip and record-keeping obligations.
• The serious contravention threshold changed the same day. It is now a knowing or reckless contravention, not the old knowing and systematic test. A builder told about a problem who left it is in range.

Records, and the reverse onus

If an employer fails to meet record-keeping or pay slip obligations and has no reasonable excuse, the burden flips. In the Ombudsman's words, "the employer needs to prove that they did pay the employee correctly or gave them the right entitlements".

On a site with daily hire, RDO cycles and allowances that turn on where a person stood that day, an employer without records cannot rebut anything. The worker's estimate becomes the number. Keep records 7 years.

How to run the self-audit

• Confirm the award and the classification for every worker. A wrong classification makes every downstream number wrong.
• Rebuild the ordinary hourly rate. Check every all purpose allowance is inside it, especially the industry and tool allowances. That is where construction underpayments live.
• Test the derived rates: overtime, penalties, annual leave, the 17.5 per cent loading and the loading on termination payouts.
• Go back 6 years, the limitation period for recovery, and calculate super on the shortfall at 12 per cent, because ordinary time earnings move with the corrected rate.
• Fix the system before you cut the cheque, or you will do this again next year.

Paying it back, and Payday Super

Back-pay is wages, plus superannuation on the wages, plus interest.

Super is the part that changed. Payday Super has been in force since 1 July 2026. A contribution is on time only if it is received by the employee's fund, with the information needed to allocate it, within 7 business days after you pay the employee. Fund receipt is the test, not the date you sent the money, so clearing house lag counts against you.

Then the human part. Tell each worker in writing what happened and how you calculated it, pay it, and consider disclosing. Getting in before they find you is the difference between a cooperation agreement and a media release.