Can a Company Director Be Liable for Unpaid Employee Entitlements?

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Can a Company Director Be Liable for Unpaid Employee Entitlements?

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Running a business in Australia carries serious responsibilities. Company directors are not only responsible for guiding strategy and making financial decisions, they are also accountable for ensuring employees receive their lawful entitlements. When a company fails to meet these obligations, directors may face personal liability.

This comprehensive guide explains when and how directors can become liable for unpaid wages, superannuation, leave, redundancy and other entitlements. It also covers the role of the Australian Taxation Office (ATO), Australian Securities and Investments Commission (ASIC), and Fair Work Ombudsman. Finally, it outlines practical steps directors can take to reduce risk and protect both themselves and their employees.

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What Counts as Employee Entitlements?

Employee entitlements are set out under the Fair Work Act 2009, relevant awards, enterprise agreements and contracts of employment. They include:

• Wages and salaries for hours worked
• Superannuation contributions
• Annual leave, personal leave, and long service leave
• Redundancy and termination payments
• Allowances under awards or agreements
• Penalty rates and overtime where applicable

Failure to meet these obligations places both the company and its directors at risk.

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Directors’ Duties Under Australian Law

Directors have obligations under the Corporations Act 2001 and are expected to act:

• With care and diligence
• in good faith and in the best interests of the company
• For proper purposes
• Without improperly using their position or information

In addition to these general duties, directors must ensure compliance with laws that govern employee entitlements and taxation.

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How Directors Become Personally Liable

Directors can face personal liability in several circumstances:

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Superannuation Guarantee Charge (SGC)

If a company does not pay superannuation contributions by the quarterly due date, the ATO can issue a Director Penalty Notice (DPN). This notice makes directors personally liable for the unpaid super plus penalties.

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PAYG Withholding

When a company withholds tax from employee wages but fails to remit it to the ATO, directors may be personally liable through a DPN.

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Insolvent Trading

If a company continues to trade while insolvent and incurs further debts, including unpaid wages, directors may be personally liable under insolvent trading laws.

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Accessorial Liability

Under the Fair Work Act, directors can be personally liable if they were knowingly involved in underpayment or breaches of employee entitlements.

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The Role of the Fair Work Ombudsman

The Fair Work Ombudsman (FWO) enforces compliance with workplace laws. It investigates complaints and can take legal action against companies and directors.

Consequences include:

• Penalties imposed on directors for breaches
• Court orders to repay employees
• Reputational damage through public reporting of breaches

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ASIC and Director Accountability

ASIC enforces the Corporations Act and can take action against directors for failing to comply with their duties. In cases where unpaid entitlements result from insolvent trading, ASIC can pursue penalties, disqualification and compensation orders.

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Case Study: Unpaid Superannuation

A Sydney construction company has failed to pay superannuation for 12 months. The ATO issued a DPN to the directors. As the company had not lodged its superannuation statements on time, the penalty became “lockdown,” meaning the directors had no ability to avoid personal liability. The directors were required to pay the debt from their own funds.

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Case Study: Unpaid Wages

The childcare business experienced cash flow problems and delayed wage payments. Employees complained to the Fair Work Ombudsman, which investigated. The directors were found personally liable under the aider-abettor liability provisions and fined in addition to repaying wages.

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The Impact of Insolvency

When a company enters liquidation, unpaid employee entitlements are generally prioritised. However, if directors allow a company to trade while insolvent, they may still face personal liability. Insolvency trading laws are enforced by ASIC and carry significant penalties.

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Director Penalty Notices Explained

A Director Penalty Notice (DPN) is a tool used by the ATO to recover unpaid PAYG withholding and superannuation.

Two types of DPN exist:

• Non-lockdown DPN: Issued when a company has reported liabilities but not paid them. Directors have 21 days to take action such as paying the debt or placing the company into administration or liquidation.
• Lockdown DPN: Issued when a company has not reported liabilities on time. Directors are automatically personally liable and cannot avoid payment by placing the company into administration or liquidation.

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Redundancy and Termination Payments

If a company is unable to meet redundancy or termination payment obligations, employees can apply to the Fair Entitlements Guarantee (FEG) scheme. While FEG provides a safety net, directors may still face investigation for insolvent trading or breaches of duty that led to unpaid entitlements.

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Practical Steps for Directors to Reduce Risk

Directors can reduce their risk of personal liability by:

• Ensuring payroll is processed accurately and on time
• Making superannuation contributions by the quarterly deadlines
• Lodging BAS and superannuation statements on time
• Monitoring cash flow to ensure solvency
• Seek professional advice early if financial difficulties arise
• Keeping accurate financial and employee records

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The Role of Business Accountants

Business accountants play a critical role in supporting directors. At Trinity Accounting Practice, we assist by:

• Managing payroll and Single Touch Payroll compliance
• Preparing and lodging BAS, IAS and superannuation reports
• Monitoring cash flow and advising on solvency risks
• Providing business advisory services to strengthen financial management
• Supporting directors in responding to ATO and Fair Work investigations

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See our Accounting & Taxation and Business Advisory pages for details.

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Virtual CFO Support for Directors

For growing businesses, our Virtual CFO services provide ongoing oversight and advice. We help directors understand their obligations, maintain compliance, and make strategic decisions. Visit VCFO Australia for more.

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Why This Matters to Sydney Business Directors

Sydney directors face the same laws as directors across Australia, but local knowledge is valuable. Costs, wages and industry conditions in NSW can place additional pressures on a business' cash flow. Having a Sydney-based accountant ensures practical advice tailored to local conditions.

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Key Takeaways for Directors

Company directors in Australia cannot ignore employee entitlements. Unpaid wages, superannuation and tax withholdings expose directors to personal liability through the ATO, ASIC and Fair Work enforcement. Early action, accurate reporting, and professional accounting support protect both directors and employees.

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Contact Trinity Accounting Practice

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 Weekend & after-hours appointments available!
📅 Booking Link: https://calendly.com/ramy-hanna

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🌐 Our Virtual CFO division, VCFO Australia, provides strategic financial management, budgeting, forecasting, and compliance support for growing businesses and not-for-profits: https://www.vcfoaus.au/

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