Underpayment Is Now a Criminal Risk: A Wage-Compliance Health Check for Venue Owners

Fair Work’s August 2026 report found 22 of 28 Hobart cafés, restaurants and fast food businesses inspected in 2025 were non-compliant, and intentional underpayment has been a crime since January 2025. The fix starts with classifications, records and flat rates.

For most venue owners, a payroll error used to be a back-pay problem: find the shortfall, fix it and move on. That is no longer the whole picture. Hospitality wage compliance now sits alongside food safety and liquor licensing as a risk that can reach owners and directors personally, because the Fair Work Ombudsman states that intentional underpayment of wages or entitlements can be a criminal offence. The regulator also makes clear that honest mistakes are not considered a criminal offence. The practical question for every operator is whether their records would show the difference.

What the law now says

The criminal offence has applied from 1 January 2025, and the Fair Work Ombudsman’s criminal prosecution guidance confirms that it does not include honest mistakes. The penalties are designed to remove any commercial benefit. For a company, the maximum fine is the higher of three times the underpayment or $9.1 million, or $9.1 million where the underpaid amount cannot be determined. For an individual, the maximum is 10 years in prison, a fine, or both, with the fine set at the higher of three times the underpayment or $1.82 million.

Only the Commonwealth Director of Public Prosecutions and the Australian Federal Police can start criminal proceedings; the Fair Work Ombudsman investigates and can refer matters to them. Smaller venues have one additional safeguard. The Voluntary Small Business Wage Compliance Code took effect from 1 January 2025 and can be used by businesses that employ fewer than 15 employees, as explained in the Fair Work Ombudsman’s announcement of the Small Business Wage Compliance Code. If a small business complies with the Code, the Ombudsman cannot refer it for criminal prosecution. The Code is not a substitute for paying correctly: any underpayment still has to be found and repaid.

What inspectors are finding

The most recent hospitality results show how common the basic errors still are. In August 2026, the Fair Work Ombudsman reported on unannounced inspections conducted in 2025 at 28 fast food outlets, restaurants and cafés in Hobart: 22 were non-compliant and six were compliant, according to the Fair Work Ombudsman’s Hobart inspection results. Twenty businesses had underpaid base rates and 18 had underpaid penalty rates, while seven had record-keeping breaches and five had pay slip breaches.

Inspectors recovered $129,674 for 180 workers. The largest single recovery was $19,277 for 27 employees covered by the Restaurant Industry Award 2020. The regulator also issued 12 Infringement Notices to eight businesses, totalling $24,570, and 31 Compliance Notices to 22 businesses.

Fair Work Ombudsman Anna Booth said: “Employers must ensure they are meeting their legal obligations to pay their workers proper base rates, penalty rates and overtime. Accurate pay slips and other records are also critical requirements.”

The flat-rate trap

Flat hourly rates remain one of the most common causes of large hospitality underpayments. In April 2026, The Luck Bird Pty Ltd, trading as Carlucci’s Restaurant of Templestowe in Melbourne, entered an Enforceable Undertaking after back-paying $194,011 to 38 workers, made up of $173,224 in wages and $20,787 in superannuation, according to the Fair Work Ombudsman’s April 2026 report on Carlucci’s Restaurant.

The regulator found that “the employer had paid flat rates that they incorrectly believed were enough to cover all entitlements, including penalties and overtime”. Seven junior employees, some as young as 15, were underpaid amounts ranging from $305 to $8,754.

The undertaking requires an independent audit, a Restaurant Industry Award training document and monthly paid ‘toolbox’ meetings for staff. Ms Booth said: “Flat hourly rates of pay can commonly fail to meet hardworking employees’ full range of entitlements.”

A flat rate is a pricing decision about labour. Unless it is tested against the award every pay cycle, it is also a compliance risk.

Classifications and records decide the outcome

The Fair Work Ombudsman’s Hobart inspection results also show what a corrected business looks like. A North Hobart business that had back-paid 55 workers $150,905 after inspections in 2019 was found compliant on revisit, apart from a missed age-related pay increase for four staff, worth $2,199.

Its director said: “I now understand the Award, specifically the classifications within it, as the 2019 underpayment arose due to wrong classifications. I have also made sure I have proper time records.”

That sentence is the health check in miniature. Classifications set the base rate, time records prove which penalty rates apply, and pay slips show the employee and the regulator that both were applied correctly. When any of the three is missing, the business cannot easily show that an error was honest.

A wage-compliance health check for this month

1. Confirm every classification. Check each employee’s award level against the duties they actually perform, not the role they were hired into.
2. Test any flat or annualised rate. Compare it, pay cycle by pay cycle, with what the award would have paid for the hours, days and times actually worked, including penalties and overtime.
3. Diarise age-related and annual increases. Junior rates change on birthdays, and award rates change each year; both should be scheduled in payroll rather than remembered.
4. Make time records the source of truth. Rosters show what was planned; pay should follow what was clocked, approved and kept.
5. Check every pay slip. Confirm that slips are issued on time and show the information the law requires.
6. Fix and document errors promptly. When you find a shortfall, repay it, record what happened and change the process that caused it.
7. Use the free tools. The Fair Work Ombudsman’s Pay and Conditions Tool and Employer Advisory Service provide practical assistance. The Fair Work Ombudsman also scheduled a webinar on compliance in the fast food, restaurant and café sector for Wednesday 21 October 2026 at 3 pm AEDT.

Wage compliance is ultimately a systems question: the venues that get it right have rosters, time-keeping and payroll that talk to each other, which is the case we made in From Whiteboard to War Room.

At Alto Cibum, labour modelling and operating structure are part of our food and beverage consulting work, and we help venues design rosters and processes that make correct pay the default.

We do not provide legal advice, so for award interpretation use the Fair Work Ombudsman’s tools or take professional advice.

Robert Clifford, Managing Director, Alto Cibum