Can a director be personally liable for an underpayment?

Yes, but not because of the office. Section 550 requires that the director knew the essential facts making the conduct unlawful and intentionally participated in the particular contravention — for example by deciding or endorsing the arrangement that produced the shortfall. Knowledge coupled with inaction is not automatically involvement. Where a case rests on omission, intentional participation with practical connection to the contravention must still be shown on the evidence.

Is a payroll officer liable for every payroll error?

No. Processing pay under instruction, without knowing the facts that made the payments unlawful, is not involvement in a contravention, and failing to discover an error is not either. Exposure arises where the person knew those facts and continued to participate. Raising the concern promptly, in writing, through a channel that records and retains the escalation is important evidence of what was known and done, though it is not an automatic defence.

Can an external accountant or adviser be liable?

Yes, where the adviser knew the relevant facts and participated in the contravention. In the Blue Impression proceedings an accounting firm was found involved because it had earlier helped the same client rectify an award shortfall, knew the applicable rates, and kept processing pay below them. Answering a narrow question accurately, or processing client-supplied data with no knowledge of the instrument, is a materially different position.

Does outsourcing payroll transfer the employer's responsibility?

No. The employing entity remains bound by the applicable award or enterprise agreement and the National Employment Standards, whatever the service contract says. A managed payroll provider or software vendor may have its own exposure under section 550 where its people know the settings are wrong for the instrument and keep them in place, but that sits in addition to the employer's obligation rather than in substitution for it.

Is “should have known” enough under section 550?

Generally not. Section 550 is directed at knowledge of the essential facts combined with intentional participation, so an argument that a more diligent person would have found the problem goes to competence rather than accessorial liability. Knowledge can still be inferred from documents, conversations and conduct, and a deliberate decision to avoid an obvious question may form part of that picture — but inference is not the same as proof of carelessness.

Does a written disclaimer prevent accessorial liability?

No. A scope limitation records what an adviser was retained to do and can be persuasive evidence that a firm was never positioned to know a particular fact. A disclaimer does not excuse knowing involvement, although the engagement scope may remain relevant evidence of the adviser's role and conduct. An adviser who becomes aware of apparent non-compliance outside the retainer should put that in writing to the client rather than rely on the engagement terms, and should take its own advice if instructed to continue regardless.

How does section 558B differ from section 550?

Section 558B is a distinct statutory regime, not another section 550 role. It applies only to responsible franchisor entities and holding companies, and only to the civil remedy provisions covered by section 558B(7) — not every franchisee or subsidiary contravention. It can apply where the entity, or a relevant officer, knew or could reasonably have been expected to have known of a contravention of the same or a similar character. That expected-knowledge limb is broader than section 550, and a separate reasonable-steps exception applies.

Can an underpayment also be criminal?

Since 1 January 2025 an employer — an individual or a company — that intentionally engages in conduct and intends the resulting failure to pay certain amounts in full on or before the day they fall due may commit an offence; an accidental underpayment is not enough. Criminal responsibility is not established merely by satisfying section 550. Where the Fair Work Ombudsman is satisfied a small business complied with the Voluntary Small Business Wage Compliance Code, it cannot refer that employer for prosecution.

Workplace Advisory & Compliance

Accessorial liability for underpayments: who else can be personally liable

An underpayment starts with the employer, but section 550 of the Fair Work Act asks a second question: was anyone else knowingly involved? This guide explains the test, the evidence courts look for, how section 557A, section 558B and the criminal offence differ, and what to do on finding a suspected underpayment.

By the AWS Editorial Team21 May 2026Updated 3 November 2026

Payroll professional and external adviser reviewing wage compliance documentation

Key points

The employing entity owes the wages; outsourcing payroll, software or advice does not transfer that obligation.
Section 550 requires knowing, intentional involvement in a particular civil remedy contravention — not title, seniority or negligence.
Contemporaneous records, prior warnings and the person's communications and conduct can be important evidence of actual knowledge; prior notice of the correct position is not a prerequisite to liability.
Remedies are court-determined on the pleaded contravention and the evidence, and may include personal pecuniary penalties and compensatory orders.
Section 557A serious contraventions, section 558B franchisor and holding company liability, and the criminal underpayment offence are separate tests.
Prompt lawful escalation, remediation and durable controls reduce risk, but none is an automatic defence.

The employer owes the wages; section 550 asks a second question

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.

What section 550 requires

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, participation and the evidence trail

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.

What does not establish accessorial liability

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.

A role-and-risk matrix

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

Role	Typical connection	Evidence pointing away from involvement	Evidence increasing exposure	Immediate governance response
Directors and senior executives	Approve pay structures; decide whether to fund a fix.	No involvement in the pay decision; never reported upward; funded once it was.	Records showing the correct position was explained and the arrangement deliberately kept running.	Report upward, fund verification, record the decision and date.
HR and payroll employees	Apply rates set by others; often see the discrepancy first, with least authority to fix it.	Processing under instruction without knowing the facts that made payments unlawful.	Told the rate was wrong and applying it anyway; altering time or pay records.	Escalate in writing through a recorded channel before the next pay run.
External accountants, bookkeepers and workplace advisers	Advise on, calculate or review pay against an instrument.	A narrow retainer, accurately answered, with no knowledge of the non-compliant facts.	Prior work on the same award for the client, then servicing rates known to fall short.	Put the apparent non-compliance to the client in writing, whatever the retainer says.
Managed payroll providers and software vendors	Supply a platform, or process pay from client data and configuration.	Licensing software the customer configures; processing approved data with no instrument knowledge.	Provider staff know settings are wrong for the instrument and keep them, or assert compliance.	Raise it in writing; record what the client was told and decided.
Responsible franchisor entities and holding companies	Franchise networks and corporate groups; s 558B is a distinct statutory regime covering the civil remedy provisions in s 558B(7), not another s 550 role.	Reasonable steps taken to prevent a contravention of that kind — the separate statutory exception.	Knowledge, or reasonable expectation of knowledge, held by the entity or a relevant officer, of a contravention of the same or similar character.	Test network or subsidiary controls against the reasonable-steps exception; record it.

What Blue Impression and New Shanghai show

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, franchisor liability and criminal underpayment

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 and intends the resulting failure to pay a covered required amount in full on or before the day it is due may commit an offence under section 327A. Section 327A(3)(b) applies intention to both the conduct and the resulting failure to pay; intentional conduct that accidentally produces an underpayment is not enough. 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.

Payday Super: separate SG obligations and potential Fair Work accessorial liability

Section 550 does not apply directly to a breach solely of superannuation-guarantee legislation. However, superannuation non-payment may also contravene the Fair Work Act: section 116B imposes an NES obligation on an employer to make superannuation contributions so as to avoid liability to pay superannuation guarantee charge, and section 44 prohibits contravention of the NES. Non-payment may also breach an applicable award or enterprise agreement. Where a Fair Work civil remedy contravention and the elements of involvement under section 550 are established, an adviser, payroll provider or other person may therefore face accessorial liability. The employer’s separate obligations under the Superannuation Guarantee (Administration) Act 1992 are administered by the ATO. For qualifying earnings paid on or after 1 July 2026, Payday Super generally requires contributions to reach the employee's fund, with the information the fund needs to allocate them, within seven business days after payday, subject to specified longer periods; earnings paid up to 30 June 2026 remain under the quarterly rules.

For payroll providers, bureaux and bookkeepers the practical work includes configuration, evidence and escalation, without excluding potential legal exposure where the applicable elements are established: mapping which pay elements are qualifying earnings, aligning contribution file timing with each pay run rather than each quarter, monitoring fund rejections and returned contributions so they are corrected inside the window, and telling the client in writing when a setting or instruction would cause contributions to miss it. Registered tax and BAS agents also carry their own professional obligations under the Tax Agent Services Act 2009. None of that transfers the employer's obligation, and a scope letter should say who monitors receipt by the fund.

Worked example 1: a payroll officer escalates a suspected outdated rate

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.

Worked example 2: an external payroll adviser with prior notice

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.

A 12-step response checklist

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.

Governance controls that reduce recurrence

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.

How AWS supports wage compliance

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.

Frequently asked questions

Can a director be personally liable for an underpayment?: Yes, but not because of the office. Section 550 requires that the director knew the essential facts making the conduct unlawful and intentionally participated in the particular contravention — for example by deciding or endorsing the arrangement that produced the shortfall. Knowledge coupled with inaction is not automatically involvement. Where a case rests on omission, intentional participation with practical connection to the contravention must still be shown on the evidence.
Is a payroll officer liable for every payroll error?: No. Processing pay under instruction, without knowing the facts that made the payments unlawful, is not involvement in a contravention, and failing to discover an error is not either. Exposure arises where the person knew those facts and continued to participate. Raising the concern promptly, in writing, through a channel that records and retains the escalation is important evidence of what was known and done, though it is not an automatic defence.
Can an external accountant or adviser be liable?: Yes, where the adviser knew the relevant facts and participated in the contravention. In the Blue Impression proceedings an accounting firm was found involved because it had earlier helped the same client rectify an award shortfall, knew the applicable rates, and kept processing pay below them. Answering a narrow question accurately, or processing client-supplied data with no knowledge of the instrument, is a materially different position.
Does outsourcing payroll transfer the employer's responsibility?: No. The employing entity remains bound by the applicable award or enterprise agreement and the National Employment Standards, whatever the service contract says. A managed payroll provider or software vendor may have its own exposure under section 550 where its people know the settings are wrong for the instrument and keep them in place, but that sits in addition to the employer's obligation rather than in substitution for it.
Is “should have known” enough under section 550?: Generally not. Section 550 is directed at knowledge of the essential facts combined with intentional participation, so an argument that a more diligent person would have found the problem goes to competence rather than accessorial liability. Knowledge can still be inferred from documents, conversations and conduct, and a deliberate decision to avoid an obvious question may form part of that picture — but inference is not the same as proof of carelessness.
Does a written disclaimer prevent accessorial liability?: No. A scope limitation records what an adviser was retained to do and can be persuasive evidence that a firm was never positioned to know a particular fact. A disclaimer does not excuse knowing involvement, although the engagement scope may remain relevant evidence of the adviser's role and conduct. An adviser who becomes aware of apparent non-compliance outside the retainer should put that in writing to the client rather than rely on the engagement terms, and should take its own advice if instructed to continue regardless.
How does section 558B differ from section 550?: Section 558B is a distinct statutory regime, not another section 550 role. It applies only to responsible franchisor entities and holding companies, and only to the civil remedy provisions covered by section 558B(7) — not every franchisee or subsidiary contravention. It can apply where the entity, or a relevant officer, knew or could reasonably have been expected to have known of a contravention of the same or a similar character. That expected-knowledge limb is broader than section 550, and a separate reasonable-steps exception applies.
Can an underpayment also be criminal?: Since 1 January 2025 an employer — an individual or a company — that intentionally engages in conduct and intends the resulting failure to pay certain amounts in full on or before the day they fall due may commit an offence; an accidental underpayment is not enough. Criminal responsibility is not established merely by satisfying section 550. Where the Fair Work Ombudsman is satisfied a small business complied with the Voluntary Small Business Wage Compliance Code, it cannot refer that employer for prosecution.

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