I think I've underpaid my employee

Employees must be paid their minimum pay rates and entitlements. If an underpayment has happened, learn how to fix it.

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Know what you must pay

If you think you’ve underpaid your employee, it is important that you fix the underpayment quickly and take steps to make sure you get things right in the future.

To understand what you must pay your employee, the first thing you should do is know which agreement or award applies. This will help you check and confirm the right pay rates.

Agreement

If you’re covered by an enterprise agreement, you can find it on Fair Work Commission – Find an enterprise agreement. You can find pay rates and entitlements in the agreement.

Award

If you know your award, you can find it at List of awards. If you don’t know which award applies to your business, or you need to check a pay rate, use our Pay and Conditions Tool.

Employees covered by an award are paid based on their classification. Learn more at Award classifications.

Check if other payments are required under an award or agreement

In addition to your employee’s minimum pay rate, you should check if they should get:

  • penalty rates, overtime or allowances
  • leave payments or leave loading
  • any other entitlements.

You can find these in your award or agreement.

No award or agreement applies

If no award or agreement applies to your business, your employee may be award and agreement free. Learn more about what minimum entitlements they have at award and agreement free wages and conditions.

Check what you’ve paid

Once you know what your employee is entitled to, you then need to check what you’ve been paying them. This will help you confirm if an underpayment has happened. You can use past pay slips, records, payroll systems or ask your accountant to help with this task.

If you’re not sure what records you should be keeping, learn more at Pay slips and record-keeping. You can also complete our Record-keeping and pay slips online learning course.

Work out the underpayment amount

To work out the underpayment amount, you’ll need to work out the difference between:

  • what the employee should have been paid, and
  • how much they were actually paid for the underpayment period.

Tip: Know when pay rates can increase

Be ready for future pay increases by regularly checking your employees’ minimum pay rate.

Set a reminder for when employees are likely to get a pay increase, such as:

  • on a junior employee’s birthday
  • when yearly progression for some classifications happens
  • when the annual wage review happens.

You can keep up to date by subscribing to email updates.

Learn more at Minimum wages.

Talk to your employee

Arrange a time to talk with your employee about the underpayment. Tell them what happened and how you plan on fixing it, and include any calculations you’ve made to work out how much they were underpaid. It can be helpful to share where you found the information.

If the underpayment amount is more than your business can afford in a single payment, you should talk to your employee to discuss arrangements for the amount to be paid back in instalments.

If you need help having a conversation with your employee, take our Difficult conversations in the workplace – manager course.

Follow up after the discussion

Send a follow-up email to your employee and include a summary of the discussion and agreement. If you’ve agreed to pay back the underpayment in instalments, it’s important to make sure to keep a record of this arrangement. This should include:

  • the amount and frequency of the payments
  • how payments will be made, for example, by cash, cheque or electronic funds transfer.

Make sure you record the back payment in your employee's pay records.

Fix the underpayment

Pay your employee the underpayment amount as soon as possible. This could be part of the next pay cycle or as a separate payment.

Tip: Check additional tax and superannuation payments

You should also check any additional tax and superannuation that your business is required to pay during that time. For information about:

Check your payroll systems

Now that you’ve fixed the employee’s underpayment, find out what caused the issue. If it was a payroll system issue, this will need to be fixed so it won’t happen again.

Example: Employer discovers penalty rates apply

Mai Lin regularly works on the weekend. Under the relevant award she should be paid penalty rates for both weekend days.

Mai Lin's employer, Ying, checks their records and sees that Mai Lin isn’t being paid penalty rates. She uses the Pay and Conditions Tool to work out what Mai Lin should be paid. Ying tells Mai Lin about the error and shows her the calculations.

Ying adds the amount owing to Mai Lin’s next pay and records it on her pay slip. She lets Mai Lin know she has back paid her. Ying checks the payroll system and fixes the error so Mai Lin’s future pay includes the correct penalty rates when they apply.

If you need more support

If your business doesn't have a payroll officer, you should consider getting help from an accountant or bookkeeper to calculate underpayments.

Employers can choose to become a member of an employer associationAn organisation for employers that is set up to help protect the interest of its members. There are many different types of employer associations available to an employer based on the industry the employer is in. . You can find a list of employer associations at Find a registered organisation.

You may also consider getting independent advice from a lawyer or another professional about your business’s obligations. For more information, visit Other workplace relations help.

Small business employers can contact the Employer Advisory Service for free tailored written advice about pay and conditions. For more information, visit Employer Advisory Service.

Compliance and enforcement

It’s best if you report an underpayment to us as soon as possible, especially in situations where the underpayment has been happening over a long period or is for a large amount. To self report an underpayment, you can contact us.

An employer who self-reports an underpayment to us can request to enter a cooperation agreement. To find out more, visit Cooperation agreements.

To find out more about our approach to non-compliance with Australian workplace laws, including self-reported non-compliance, read our Compliance and enforcement policy on Our policies.

Stay up to date

We regularly update our Pay Calculator and website with information about pay. You can get alerts from us about annual minimum wage increases and award changes when they happen by subscribing to email updates.

Tools and resources

Related information