Underpayment of restaurant staff in 2026 is no longer just a civil compliance matter. Since 1 January 2025, intentional underpayment is a federal criminal offence under the Fair Work Act, with maximum penalties of 10 years’ imprisonment for individuals and $7.825 million for corporations. Civil penalties have also escalated: the maximum is now $495,000 per contravention for non-small business employers, or three times the underpayment, whichever is greater. Here is exactly what happens — and what protections exist for venues acting in good faith.
A restaurant that underpays staff faces: back-pay of all underpaid amounts (with interest), civil penalties up to $495,000 per contravention for non-small business body corporates (or 3x the underpayment, whichever is greater), and individual penalties up to $99,000 per contravention for accessories under section 550 (such as directors and managers). Where the contravention is “serious”, the maximums rise to $4.95 million (corporate) and $990,000 (individual). Since 1 January 2025, intentional underpayment is a criminal offence carrying up to 10 years’ imprisonment and fines up to $7.825 million (corporate) or $1.565 million (individual). Small business employers (<15 employees) have safe harbour from criminal prosecution under the Voluntary Small Business Wage Compliance Code.
Civil penalties for underpayment under the Fair Work Act 2009 (Cth) apply regardless of intent — accidental and inadvertent underpayments are still civil contraventions. The Closing Loopholes Act 2023 substantially increased the civil maximum from 1 January 2025 for non-small business employers.
| Contravener Type | Standard Civil Penalty (Max) | Serious Contravention (Max) |
|---|---|---|
| Body corporate (non-small business) | $495,000 or 3x underpayment | $4,950,000 or 3x underpayment |
| Individual (e.g. director, manager — s550 accessory) | $99,000 or 3x underpayment | $990,000 or 3x underpayment |
| Small business body corporate (<15 employees) | $93,900 per contravention | Standard small business penalties apply |
Each contravention is counted separately. An employer who underpays 20 employees in a single pay period potentially faces 20 separate civil contraventions. The Federal Court has consistently treated each underpaid employee, and in some cases each pay period, as a separate contravention.
The “3x underpayment” alternative is significant. A $200,000 collective underpayment converts to a $600,000 maximum penalty alternative — already exceeding the $495,000 fixed cap. Larger underpayments push the cap higher.
From 1 January 2025, the test for a serious contravention was lowered. A contravention is now serious if it was knowing or reckless. The previous requirement that the contravention form part of a systematic pattern of conduct was removed.
This change is consequential. A single underpayment that the employer knew about (or should have known about, by being reckless about Award compliance) can now attract the higher serious contravention penalties — without needing to prove a pattern.
Section 327A of the Fair Work Act, inserted by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024, makes it a federal criminal offence to intentionally engage in conduct that results in a failure to pay an amount payable to an employee. The offence applies to conduct on or after 1 January 2025.
| Offender | Maximum Criminal Penalty |
|---|---|
| Individual (e.g. owner, director, manager personally involved) | 10 years’ imprisonment and/or a fine of the greater of $1,565,000 (5,000 penalty units) or 3x the underpayment |
| Body corporate | A fine of the greater of $7,825,000 (25,000 penalty units) or 3x the underpayment |
Penalty unit values are indexed periodically, so the dollar figures rise over time. The figures above reflect the value of a penalty unit at $313 from 1 July 2024.
The offence under section 327A has four elements:
The criminal standard of proof applies — beyond reasonable doubt. Honest mistakes, genuine errors, and inadvertent calculation failures are outside the criminal offence (though civil penalties remain in scope).
However, “intentional” can be imputed from conduct. Under the Commonwealth Criminal Code, a body corporate’s intent can be established by showing that the corporate culture directed, encouraged, tolerated, or led to non-compliance — without needing to prove a specific officer knew of the specific underpayment. This is a significant exposure for venue groups with absent compliance frameworks.
Under section 550 of the Fair Work Act, a person who is “involved in” a contravention is taken to have contravened the relevant provision. “Involved” means aiding, abetting, counselling, procuring, inducing, or being knowingly concerned in.
This catches:
Personal accessorial liability under section 550 means the individual penalty maximums apply to the accessory directly. The director of an underpaying body corporate is not protected by the corporate veil for accessorial liability.
The Voluntary Small Business Wage Compliance Code, declared by the Minister for Employment and Workplace Relations on 16 December 2024, provides a safe harbour from criminal prosecution for small business employers (fewer than 15 employees under section 23 of the Act).
Where the Fair Work Ombudsman is satisfied that the small business has complied with the Code, the FWO must not refer suspected underpayments for criminal prosecution. The Code is not a prescriptive checklist — it is a framework for demonstrating good faith. Indicative compliance behaviours include:
Compliance with the Code does not prevent a civil claim or remove back-pay obligations — it only protects against criminal referral.
Under section 327E of the Fair Work Act, an employer who voluntarily discloses a potential underpayment to the FWO before being investigated may apply to enter a cooperation agreement. If the FWO accepts, the FWO must not refer the conduct covered by the agreement to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for criminal prosecution.
Cooperation agreements are at the FWO’s discretion. Factors the FWO considers include:
Cooperation agreements do not protect against civil penalty proceedings — the FWO can still pursue civil action — but they remove the criminal exposure.
Both the civil regime (section 544 of the Fair Work Act) and the criminal regime have a six-year limitation period. Civil proceedings for an underpayment must be commenced within six years from the day on which the contravention occurred. Criminal proceedings under section 327A must be commenced within six years.
The criminal offence does not have retrospective effect. Underpayments that occurred before 1 January 2025 cannot be the subject of criminal prosecution, but they remain enforceable under the civil regime for six years from the date of the contravention.
The typical Fair Work Ombudsman investigation follows this pattern:
The full Restaurant Award guide — penalty rates, classifications, and compliance.
Base rates, penalty rates, and loadings across every classification level.
The post-February 2025 framework, 6-month threshold, and CEIS obligations.
Meal breaks, rest breaks, and the 50% delayed meal break penalty.
Fitz HR reads MA000119 and the Fair Work Act in real time. Verify pay rates, check rostering compliance, and catch underpayment risks before they become contraventions.
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