Accessorial liability for underpayments: who else can be personally liable

When an underpayment surfaces, the employing entity owes the money. It is bound by the applicable award or enterprise agreement and the National Employment Standards, and must fix the shortfall. Outsourcing the pay run, licensing a payroll product or engaging an accountant does not move that obligation, whatever the service contract says.

The second question is the one people miss. The Fair Work Act allows a court to treat another person as having contravened the same provision where that person was involved in it. Personal pecuniary penalties and compensatory orders may follow in that person's own name, and an employer's liquidation does not necessarily end matters.

This guide addresses the second question: who else may be exposed, on what evidence, how adjacent regimes differ, and what to do on finding a suspected underpayment. It is general information, not legal advice, and does not repeat our guide to conducting a wage compliance review or the analysis in award coverage and classification.

Section 550 of the Fair Work Act 2009 (Cth) provides that a person involved in a contravention of a civil remedy provision is taken to have contravened it. Subsection 550(2) defines involvement exhaustively: a person is involved if, and only if, they have aided, abetted, counselled or procured the contravention; induced it, whether by threats or promises or otherwise; been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to it; or conspired with others to effect it. The section appears on AustLII.

Those words come from accessorial liability provisions elsewhere in Commonwealth law. Two elements must generally be established. The person must have known the essential facts constituting the contravention — that the employees were covered by a particular instrument, what it required, and what was in fact paid — and must have participated intentionally and in a practical sense.

A person is not excused by saying they did not appreciate the conduct broke the law; the focus is knowledge of the facts, not the accessory's legal conclusion. Where the contravention is defined by reference to an instrument, however, knowing the essential facts will ordinarily include knowing the substance of what it required.

The analysis is tied to a particular contravention, period and course of conduct. Whether any order is made against an accessory, and of what kind, depends on the contravention pleaded, the evidence accepted and the court's statutory powers.

Knowledge is rarely admitted. It is proved out of the organisation's own paperwork: a prior audit or rectification putting the same people on notice of the same obligation; regulator correspondence; written advice not acted on; emails debating a rate; minutes deferring a fix; configuration logs showing who changed a parameter.

Knowledge may be inferred from documents, conversations and conduct, and a deliberate decision to avoid an obvious question can form part of that picture. It does not follow that wilful blindness establishes liability by itself: the court must still be satisfied the person knew the essential facts and intentionally participated in the contravention alleged.

Participation means doing something with practical connection to the contravention: instructing that a rate continue after the correct position was explained; maintaining the setting producing the shortfall; processing pay known to fall below the instrument; adjusting records so hours worked no longer appear. Presence, or unease that something is untidy, is not enough.

A scope limitation in an engagement letter records what an adviser was retained to do and can be persuasive evidence that a firm was never positioned to know a fact. It is not a shield for someone who did know. Nor is a communication privileged merely because it concerns compliance risk, involves a lawyer, accountant or consultant, or carries a “privileged” label — privilege applies only where the established requirements are satisfied, a question for legal advice before treating any document as protected.

Holding office as a director does not by itself produce personal exposure, nor does being the HR or payroll manager, preparing a client's accounts, entering approved data, or signing a pay run later found to contain an error.

Negligence is not the test. “They should have known” is an argument about competence: a person who genuinely did not know the facts that made the conduct unlawful is not an accessory because a more diligent person would have found out.

Nor is a failure to discover an error involvement in it, and knowledge with inaction is not automatically involvement. Where a case rests on omission, it must still be shown the person intentionally participated through that omission, with practical connection to the particular contravention. Section 550 itself imposes no duty to resign, self-report or take over a payroll function; duties may arise from a person's role, contract, professional obligations or another law, which is a question for advice on the facts.

The table is a triage aid, not a conclusion: each case turns on the contravention pleaded and the evidence about that person.

The best-known adviser case is Blue Impression. The employer, running a Japanese fast food outlet in Melbourne, underpaid two Taiwanese working-holiday employees under the Fast Food Industry Award. Its accounting provider, Ezy Accounting 123 Pty Ltd, processed the payments. The Federal Circuit Court found the firm involved in part of the underpayment: it had earlier helped the same client rectify an award shortfall after a Fair Work Ombudsman audit, so knew the rates, and kept processing pay it knew fell below them. Liability was decided in Fair Work Ombudsman v Blue Impression Pty Ltd [2017] FCCA 810, with penalties in the No.2 judgment; the regulator's account of the outcome gives the figures.

On appeal in EZY Accounting 123 Pty Ltd v Fair Work Ombudsman [2018] FCAFC 134 the Full Court upheld the accessorial liability findings. The appeal succeeded only on the rest and meal break contraventions, and the penalty was varied accordingly.

New Shanghai Charlestown concerns an individual inside the business. Eighty-five employees of the NSW restaurant were underpaid a substantial sum over about sixteen months, and records were falsified. Bromwich J penalised the company, its owner and the restaurant's human resources manager, who was found knowingly involved; her submission that acting on the owner's directions reduced her culpability was rejected: Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown [2017] FCA 1301, with the regulator's penalty announcement.

Neither matter says ordinary payroll or accounting work is dangerous. They show the shape of the risk: prior notice of the correct position, then continued participation in paying something else. The regulator's guidance on accessorial liability lists the roles it has pursued.

Serious contraventions are dealt with by section 557A. Under the current consolidated Act a contravention is serious where the person knowingly contravened the provision, or was reckless as to whether it would occur; the earlier systematic-pattern requirement was removed from 27 February 2024. The consequence is a higher maximum civil penalty, and an accessory is not automatically exposed to it: under section 557A(5A) an involved person's contravention is serious only where the principal's contravention was serious and the involved person knew that it was. The text is on AustLII.

Section 558B is a different scheme, confined to responsible franchisor entities and holding companies and reaching only the civil remedy provisions covered by section 558B(7) — not every franchisee or subsidiary contravention. Such an entity can be liable where it, or a relevant officer, knew or could reasonably have been expected to have known that the contravention would occur or that one of the same or similar character was likely, subject to a separate exception where reasonable steps were taken to prevent a contravention of that kind. That expected-knowledge limb is broader than the actual knowledge section 550 requires, and the exception has no section 550 equivalent. The Fair Work Ombudsman's franchising material explains the practical expectations.

Criminal liability is separate. Since 1 January 2025 an employer — which may be an individual or a company — that intentionally engages in conduct resulting in a failure to pay certain amounts owing on or before the day they fall due may commit an offence. The covered amounts and exceptions are set out in the legislation and in the Fair Work Ombudsman's guidance on criminalising wage underpayments, which should be read rather than paraphrased; honest mistakes are not the target. Satisfying section 550 does not establish criminal responsibility: the elements, the standard of proof and complicity under the Criminal Code all differ.

The Voluntary Small Business Wage Compliance Code sits alongside that offence and is narrower than often described. Where the Fair Work Ombudsman is satisfied a small business employer complied with the Code in relation to an underpayment, the regulator cannot refer that employer for criminal prosecution. It is not immunity from civil remediation, back-payment or other enforcement.

A payroll officer preparing a fortnightly run notices casual loading calculated on a base rate superseded at the last annual wage review. The decision point is what she does before the run closes. She emails the payroll manager and HR director that day with the affected employees, the rate she believes applies and the variance, asking for a decision before processing. Sent through the organisation's own systems and retained, that email is contemporaneous evidence of what she knew and did.

The organisation holds the position pending verification, preserves instrument versions and configuration history rather than editing anything, checks the cohort and period, and back-pays. Her escalation is strong evidence, not an automatic defence: her position would still be assessed on the whole evidence.

Change one fact. She is told to keep the old rate for six months “until the budget resets”, and does so without escalating further. She now knows the essential facts and continues to participate. Whether that amounts to involvement depends on the whole evidence, and no conclusion is possible without it. Nothing here obliges her to resign; if concerned about her own exposure, the step is independent legal advice.

A bookkeeping firm processes a client's pay from timesheets and rates the client supplies, with no advisory role and no knowledge of which instrument applies. An underpayment later emerges from the client's classification error. On those facts its mechanical processing is unlikely to amount to involvement: the knowledge element is missing.

Now add prior notice. Two years earlier the firm worked through the same award with this client to calculate and pay a shortfall, and holds the rate schedule it used. When the client instructs it to process at rates it can see fall below that schedule, the decision point arrives. The exposure analysis changes because the firm knows the essential facts: which instrument applies, what it requires and what is being paid.

The lawful response is to put the position to the client in writing before the run — rates, variance and affected employees — and preserve its working papers without altering or backdating anything. If instructed to proceed regardless, the firm should take its own legal advice about continuing to act. Whether it would be found involved is for a court on the complete evidence.

The sequence below is a starting structure, not advice on the facts; the Fair Work Ombudsman sets out the mechanics of fixing an underpayment.

• Contain the issue: identify the suspected error, the cohort it may affect and the next pay run in which it would occur.
• Decide the next pay run deliberately — correct only what is verified, rather than making guesses that create a second problem.
• Obtain legal advice where personal exposure, regulator engagement, privilege or criminal risk is realistically in play.
• Preserve records lawfully: suspend routine deletion; retain instrument versions, time data, rosters, configuration history and approvals.
• Do not alter, backdate or recreate records, and do not privately remove or retain confidential employer material.
• Identify the governing instrument and version in force for each period, and who may settle that question.
• Define the affected cohorts and periods before calculating anything, including former employees.
• Calculate the shortfall on verified data, documenting method, assumptions and rate sources.
• Escalate in writing to a person with authority to decide, through channels that record and retain the escalation.
• Remediate promptly once verified, including superannuation and interest where applicable, following the regulator's published steps.
• Decide regulator notification with advice — there is no universal duty to self-report, and cooperation agreements or criminal issues need legal advice.
• Correct the control that failed, verify it in a later pay run, and document close-out with a retest date and owner.

Controls do not decide liability. They reduce the chance of anyone holding knowledge of a problem while continuing to participate in it, and record what each person knew and when.

The useful ones are unglamorous: name who may settle an award or agreement interpretation, so payroll operators are not deciding coverage by default. Publish an escalation path: who a suspected error goes to, what happens next and by when, recorded and retained. Keep advice in writing, including assumptions and what it did not answer, and record when advice is not adopted and why. Log configuration changes with person, date and reason. Re-test after the events that break payroll: annual wage reviews and award variations, acquisitions, migrations, new agreements and any complaint about pay. That governance pairs with our guide to wage compliance reviews and documentation and can be held over time in a GRC framework.

AWS is a workplace consultancy, not a law firm, and this article is general information rather than legal advice. Where personal exposure, regulator engagement, privilege or criminal risk arises, we work alongside your lawyers rather than in place of them.

Our work sits either side of it: independent wage compliance reviews establishing what was paid against the correct instrument; payroll governance covering interpretation authority, escalation, change control and retention; assurance after award variations, acquisitions or migrations; and director, HR and payroll briefings. It is delivered through workplace advisory and compliance, and interpretations, approvals and review triggers can be maintained in Strobe.