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Summary
- Employees can bring underpayment claims under three different frameworks depending on the source of their entitlement: an employment contract, a modern award or an enterprise agreement, each with its own process, forum and remedies available.
- Contractual underpayment claims must be brought within six years of the breach, with claims under $20,000 heard in the small claims court of the Federal Circuit Court and larger or more complex claims filed in the Federal Circuit Court or Federal Court of Australia.
- Award and enterprise agreement claims typically go through a dispute resolution process culminating in conciliation before the Fair Work Commission, with appeals heard in the Federal Court, and can include claims for psychological injury and lost employment opportunities in addition to unpaid amounts.
- This article is a plain-English guide to underpayment claims for employers in Australia, written by LegalVision’s business lawyers.
- LegalVision specialises in advising clients on employment law, award compliance and workplace disputes.
Tips for Businesses
If you receive a letter of demand for underpayment, get legal advice before responding. Check whether the claim arises under contract, an award or an enterprise agreement, as the process differs. Resolving legitimate underpayments early avoids court costs and limits reputational damage.
Wage underpayment is a civil and regulatory liability that arises under the Fair Work Act 2009 when an employer fails to pay an employee their minimum lawful entitlements. The Fair Work Ombudsman enforces compliance with the National Employment Standards, modern awards and enterprise agreements, and holds powers to investigate, issue compliance notices and initiate court proceedings. Underpayment can also give rise to contractual claims governed by general contract law, entirely separate from the statutory framework. This article outlines the different claims that can arise if you underpay wages or entitlements.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Contractual Claims For Underpayment
Under the Fair Work Act 2009, there are minimum entitlements you owe all employees. These are called the National Employment Standards (NES). In addition, modern awards cover employees in particular industries or occupations in any industry, which also set certain minimum entitlements.
Employers can enhance or tailor an employee’s remuneration and entitlements beyond these minimums standards in an employment contract. An employment contract is a separate bargain between an employee and an employer. Hence, if you do not pay your employee in accordance with the employment contract, the rules of contract law will govern the dispute.
Who Can Bring a Contractual Claim For Underpayment?
Any employee with an employment contract setting out any entitlements under their contract can bring this type of claim.
When Can Employees Bring a Contractual Claim?
An employee has six years from the alleged breach of the contract to bring a claim in connection with that breach. This timeframe applies whether or not you or the employee have terminated the contract.
What Can the Employee Claim?
A contractual claim might relate to:
- underpayment of salary or unlawful deductions from wages;
- non-payment of a contractual bonus; or
- non-payment or underpayment of a commission you owed under a commission structure incorporated into the contract.
What is the Process of a Contractual Claim?
Court proceedings for underpayment claims differ depending on the amount the employee claims.
| Claimed Amount | Process |
| $20,000 or less | If the employee’s claimed amount is less than $20,000, the small claims court of the Federal Circuit Court can hear the claim. The Court can also hear claims relating to bonuses or commission incentive payments. Small claims proceedings are often quicker, cheaper and more informal than regular court proceedings. Additionally, employees can generally represent themselves. In their application, the employee would set out how and why they believe you have underpaid them and attach all evidence, such as payslips. Once they have submitted these to the Small Claims Court, the employee must serve these documents on you in advance so you can prepare a response. A hearing date will be set, and a single judge will hear the case. The small claims court can award a maximum of $20,000 to successful employees. |
| Over $20,000 | If an employee has a claim worth over $20,000, the typical venue for actioning this claim will be via a general application to the Fair Work division of the Federal Circuit Court. Firstly, the employee will generally send you a letter before initiating court proceedings via a ‘letter of demand’. This letter sets out what they believe you owe them. This step allows you to pay the claimed entitlements without needing to file a court application. Nevertheless, if this route is unsuccessful, the employee can submit an application form and affidavit to the Court. For large or more complex claims, such as unpaid bonuses, the employee can file an application in the Federal Court of Australia (FCA). |
Underpayment Claims Concerning an Award or an Enterprise Agreement
Where a modern award or enterprise agreement is the source of the employee’s entitlement, an employee can bring the following claim.
The Fair Work Ombudsman’s Role
Before an employee files a court claim, they may first contact the Fair Work Ombudsman (FWO). The FWO is a government body that investigates underpayment complaints and helps resolve disputes without court involvement.
If the FWO investigates your business, you may need to provide payroll records, timesheets and employment contracts. Cooperating early can help you avoid formal enforcement action.
The FWO can issue compliance notices requiring you to back-pay employees. If you ignore a compliance notice, the FWO can take court action on the employee’s behalf. Penalties for non-compliance can be significant.
Not every complaint leads to a formal investigation. The FWO also offers a free mediation service that can resolve straightforward disputes quickly. For small businesses, this is often faster and less costly than court proceedings.
Who Can Bring Underpayment Claims?
Employees can bring this type of claim if a modern award or enterprise agreement covers them.
When Can Employees Bring Underpayment Claims?
Again, the employee has six years after the alleged breach to bring the claim.
What Can the Employee Claim?
An employee may claim payment of their base pay rate, penalties, allowances, or leave entitlements. Claims can also be about unlawful deductions you might have made from their pay.
In addition to the monetary amounts claimed, it is also for employees to claim:
- any psychiatric or psychological injuries they suffered as a result of the non-payment of the amount claimed; or
- missed opportunities for further employment.
What is the Process of Underpayment Claims?
Most modern awards and enterprise agreements contain a dispute resolution clause you and your employee must follow. Generally, an underpayment claim arising from a modern award or enterprise agreement culminates in conciliation before the Fair Work Commission (FWC).
The relevant award or enterprise agreement may indicate that the FWC has ultimate jurisdiction to decide the matter. That is to say, the FWC’s decision will bind the parties. Any party wishing to appeal the FWC’s decision must file a claim in the Federal Court.
Key Statistics
- $2 billion+: The Fair Work Ombudsman recovered over $2 billion in unpaid wages for workers across the last five years, with $358 million recovered for more than 249,000 underpaid workers in 2024–25 alone.
- $1.1 billion: The ATO returned $1.1 billion in unpaid superannuation to approximately 960,000 employees in 2024–25, raising $795 million in Superannuation Guarantee Charge liabilities through targeted audits and compliance action.
- 1 January 2025: The federal wage theft criminal offence commenced on this date, making intentional underpayment a prosecutable crime; small businesses may avoid criminal liability by complying with the Voluntary Small Business Wage Compliance Code.
Sources
- Fair Work Ombudsman – Annual Report 2024–25 Media Release (October 2025)
- Australian Taxation Office – Super Guarantee Annual Employer Compliance Results (2024–25)
- Department of Employment and Workplace Relations – New Wage Theft Criminal Offence (December 2024)
Key Takeaways
As an employer, you face the risk of an underpayment dispute relating to your employee’s wages or other entitlements. The nature of the underpayment claim and the forum in which the dispute arises ultimately depends on whether your employee brings the claim under the employment contract, a modern award or an enterprise agreement.
If you need help responding to an underpayment claim, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee.
Frequently Asked Questions
What are some claims an employee can make under their employment contract?
A contractual claim might relate to underpayment of salary or unlawful deductions from wages, non-payment of a contractual bonus, or non-payment or underpayment of a commission you owe under a commission structure incorporated into the contract.
When can an employee bring a contractual claim?
An employee has six years from the alleged breach of the contract to bring a claim in connection with that breach. Notably, this timeframe applies whether or not you or the employee have terminated the contract.
What is the small claims process for underpayment claims?
Where an employee claims $20,000 or less, the small claims court of the Federal Circuit Court can hear the matter. Proceedings are quicker, cheaper and more informal than standard court proceedings. Employees can generally represent themselves, and the maximum award available is $20,000.
Can an employee claim more than unpaid wages in an underpayment dispute?
Yes. In addition to unpaid wages, penalties, allowances or leave entitlements, an employee may also claim for psychiatric or psychological injuries suffered as a result of the non-payment, as well as missed opportunities for further employment arising from the underpayment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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