The Hiring Traps
FAIR WORK COMPLIANCE FOR EMPLOYERS: A 2026 SELF-CHECK
"We agreed on the rate." "Everyone in the industry does it this way."
Neither sentence protects an employer.
Underpayment is now a crime. This is the owner's self-check list.
Behind every shift is an award pay table | Source: Pexels
Restaurants, bubble tea shops, grocers, trading companies: small businesses are built on hard work, but where owners most often come undone is not the business itself. It is hiring. The rules of wage compliance have changed fundamentally in the past few years: underpayment has been upgraded from a civil penalty to a criminal offence, and the Fair Work Ombudsman (FWO) treats hospitality and retail as priority enforcement sectors year after year. This article walks through the traps, current as at July 2026.
01／The agreed rate doesn't count. The award does
The first lesson of Australian employment law: the great majority of employees are covered by a modern award. Hospitality has the Restaurant Industry Award, retail has the General Retail Industry Award, and almost every industry has its own. The minimum hourly rates, weekend and public holiday penalty rates, overtime and allowances set by the award are the legal floor. A number the two of you "agreed on" has no effect whatsoever to the extent it falls below that floor.
The most common mistake is a flat rate: one hourly figure covering weekdays and weekends, and it often looks generous. But a flat rate must leave the employee no worse off than their itemised award entitlements in every single pay period. In a week heavy with weekend shifts, a flat rate is easily underwater, and the shortfall is underpayment. "It averages out over the year" is not a defence.
The second mistake is misclassification: paying someone who actually supervises the shift at the lowest grade. Award pay tables are graded by duties, and the grade follows what the person actually does, not the title in the contract. Before hiring, check the applicable award and classification with the FWO's Pay and Conditions Tool. It is free.
02／The new numbers from July 2026
A batch of new figures took effect on 1 July this year. If your payroll has not been updated, do it now:
Minimum wages. The National Minimum Wage rose to $26.44 per hour ($1,004.90 per week); with the 25% casual loading, the casual minimum is $33.05. Award minimum rates rose by 4.75% across the board. Remember that most employees are on award rates, which are usually higher than the national minimum.
Superannuation. The rate stays at 12%, but the payment mechanics have changed completely: Payday Super commenced on 1 July 2026. Super must now be paid with every pay run and reach the employee's fund within 7 business days of payday. The quarterly era is over. An employer still paying on the old rhythm is now in breach on every single payday.
These figures move every 1 July with the Annual Wage Review. Putting "check the pay tables each June" into the company's fixed calendar is the cheapest compliance step there is.
03／Underpayment is now a crime
This is the heaviest change in recent employment law: since 1 January 2025, intentional underpayment of wages or superannuation is a criminal offence (wage theft). Individuals face up to 10 years' imprisonment, with fines calculated at three times the underpayment or the statutory maximum, whichever is greater. Corporate fines run into the millions.
The key word is "intentional". An honest calculation error is not a crime. But practices like "we know the award requires weekend penalties and pay weekday rates anyway", or "we know super is owed and just don't pay it", are exactly what the offence targets. For small business there is an important safe harbour: an employer who complies with the Voluntary Small Business Wage Compliance Code cannot be referred for criminal prosecution over an underpayment. The Code essentially requires what this article describes: check the award, verify pay regularly, and fix any shortfall promptly once found. In other words, the law gives the diligent employer a clear path away from criminal liability.
Calculate it, pay it right, keep the records | Source: Pexels
04／No records, and the burden of proof flips
Two hard rules: payslips must be given within one working day of payday, and employment records (hours, pay, leave, super) must be kept for seven years. Many owners treat this as paperwork that can slide when things get busy. It cannot, because of s 557C of the Fair Work Act:
Where an employee alleges underpayment and the employer failed to keep the required records or issue payslips, the burden of proof reverses: it is not for the employee to prove how much they were underpaid, but for the employer to disprove the allegation. An employer with no records, facing an employee's recollection of their hours, has almost nothing to fight with.
The practical advice is one sentence: run proper payroll software (every mainstream product generates payslips, calculates penalties and reports STP automatically). It costs far less than one FWO investigation.
05／Four high-frequency traps
Trap one: cash off the books. Paying wages in cash is itself legal, but minimum rates, payslips, super and PAYG withholding all still apply. A "cash rate" below the award with no payslip bundles underpayment, record-keeping breaches and tax problems into one package, and voluntarily surrenders the ability to defend yourself under s 557C.
Trap two: dressing employees up as "contractors". Having a worker get an ABN and invoice you, to save super and insurance, is sham contracting and unlawful in itself. And since August 2024, the employee-versus-contractor question has returned to a whole-of-relationship test: what matters is how the work actually runs (who sets the hours, who supplies the tools, whether the work can be delegated), not the word "contractor" in the document.
Trap three: casuals forever. The 25% casual loading is the price of no firm advance commitment to ongoing work. A "casual" who has worked a regular roster for a long stretch can, under the employee choice pathway operating since February 2025, give written notice to convert to permanent employment if eligible, and the employer can refuse only on limited grounds. Use the casual label to avoid paid leave, and if the person is later found to have been permanent in truth, the accrued entitlements come due all at once.
Trap four: the "market rate" for international students. Employees on student or working holiday visas have exactly the same wage rights as local staff. "They can only work limited hours, so a lower rate is fair" does not exist in law. Exploitation of visa workers is a standing FWO enforcement priority, and seeking help from the FWO generally does not affect the worker's visa. This one is a compliance warning for owners, and equally a note for readers doing the work: underpaid wages can be recovered.
06／Dismissal has rules too
Once an employee has served 6 months (or 12 months in a small business with fewer than 15 employees), unfair dismissal protection applies: a dismissal needs a valid reason and a fair process. Small business employers have a dedicated Small Business Fair Dismissal Code; following its steps (warning, opportunity to improve, documentation) substantially reduces the risk of an adverse finding.
And remember one red line with no qualifying period at all: an employee must not be dismissed or punished for asserting a workplace right, complaining, or asking about their pay (the general protections). It applies from day one, and compensation is uncapped. When an employee asks "is my pay right?", the correct response is to check, not to show them the door.
No business is big enough to survive an underpayment scandal comfortably.
Compliance is not a cost. It is the ticket to keep trading.
Sun Lawyers · Sydney Office
If you would like your current pay arrangements checked against the award, help responding to an FWO enquiry or an employee's underpayment claim, or confirmation that a dismissal process is sound before you act, contact Sun Lawyers. We work in both English and Mandarin, and we would rather help you fix a problem than defend an investigation.
Phone: 02 9267 4988 ｜ Email: enquiry@sunlaws.com
Sydney Office: Suite 703 & 704, 265 Castlereagh Street, Sydney NSW 2000
Website: sunlaws.com.au
This article is general legal information only and is not legal advice.
Please contact us for advice specific to your situation.