Directors on the Hook: Underpayment, Accessorial Liability & New Criminal Risks

If your business pays flat rates, rounds hours, or relies on rosters when employees actually work longer, the risk is no longer limited to back-pay or corporate penalties. Directors and senior leaders can be personally exposed where they are involved in underpayment or allow risky payroll practices to continue.

From 1 January 2025, intentional wage underpayment can also be a criminal offence. Honest mistakes are not criminal, but deliberate non-compliance can lead to significant fines and, for individuals, potential imprisonment.

What Directors Need to Know

Payroll compliance is now a governance issue, not just an administrative task. Common problems often begin with classification errors, missed loadings, unpaid training time, unlawful deductions, or flat rates that do not properly account for overtime and penalty rates.

Accessorial liability: Under section 550 of the Fair Work Act, individuals can be personally liable where they are involved in a contravention. This can include directors, managers, payroll officers and advisers who approve, influence, or knowingly allow unlawful practices to continue.

Compliance notices: If the Fair Work Ombudsman issues a notice to correct underpayments, failing to respond properly can create further risk. Silence, delay or incomplete remediation can make matters worse.

Criminal underpayment: The new criminal offence targets intentional conduct. Businesses that identify payroll issues should act quickly, document the fix, and avoid any conduct that could look like concealment.

Case Study: Sushi Bay

In August 2024, the Fair Work Ombudsman secured record penalties of $15.3 million against the former operators of Sushi Bay outlets after the deliberate exploitation of migrant workers and underpayments exceeding $650,000.

The Federal Court imposed penalties against multiple companies and a $1.6 million personal penalty against the owner and sole director. The case involved flat cash overtime rates, Award and penalty-rate underpayments, false or misleading records, and unlawful cashback arrangements for some visa holders.

The key lesson for directors is clear: liquidation did not remove personal exposure. The Court was prepared to look at the payroll model, records and conduct to determine involvement.

Why Flat Rates Create Risk

Flat rates may feel simple, but where Awards apply they can quickly hide overtime, weekend penalties, public holiday rates, allowances, loadings and minimum engagement requirements. If actual hours are not checked against Award entitlements, the business may not discover the underpayment until an employee, audit or regulator does it for them.

Practical Controls to Reduce Risk

• Audit high-risk arrangements, including flat rates, casuals, visa holders, overtime, leave and deductions.
• Reconcile rosters, timesheets, payroll and bank files regularly so variance patterns are visible.
• Fix errors quickly, including back-pay, superannuation and interest where appropriate.
• Train managers to avoid informal pay arrangements, cashback practices and unauthorised deductions.
• Respond promptly and substantively to Fair Work Ombudsman enquiries or notices.

Bottom Line for Directors

Directors own the system. Resourcing payroll, selecting systems, approving rosters and dealing with exceptions are governance decisions. If those systems make underpayment foreseeable, the risk can move beyond the company and reach the individuals involved.

The best defence is a well-governed payroll process with clear Award interpretation, accurate records, regular checks and fast remediation when an issue is found.

We Can Help!

At PerformHR, we specialise in helping businesses strengthen payroll compliance, employee entitlements and Employment Law practices. If you are unsure whether your pay structures, rosters or records are exposing your business or your leaders to risk, now is the time to act.

Our dedicated team of HR and Employment Relations specialists would love to help.

Call today on 1300 406 005 or email us at info@performhr.com.au.