ABC News is reporting that as many as 5,000 employees might be affected and that Lush has said the error occurred as a result of an administration error.
Lush Australia director Peta Granger said it occurred when the company's payroll infrastructure wasn’t correctly updated.
She said it has become “alarmingly” clear that Lush’s internal payroll systems have not kept pace with the company’s growth.
"It was irresponsible to imagine that such a manual and outdated system could work for a business of our size.”
She also said Lush is “sincerely” sorry for letting its staff down, that it is a “monumental” mistake and that she hopes the affected employees can find forgiveness.
According to the ABC, the mistake was first identified nearly a year ago and that it has undertaken an additional $1.5 million to fix the problem and make sure it doesn’t happen again.
Ms Granger said Lush would not have intentionally underpaid its staff.
Employees are expected to begin receiving back pay in December and that they would include interest.
Lush has written an open letter to its employees, which is posted on its website.
In the letter, it apologises to its staff members for the error and says, because they are such “important partners”, that it wants them to be amongst the first to know.
“We are sorry to say that we have unearthed evidence that we have not correctly calculated staff payments accurately according to Modern Awards. This means some staff have been underpaid at times,” the letter said.
It added that after months of investigations, it has now been able to get to the bottom of the problems.
“The next step is calculating the individual amounts and paying back each member of staff the money they are owed, which will be paid with interest added and with superannuation payments, where relevant, to ensure that staff get every cent they are owed and are not left out of pocket by our mistakes.
“We have also commissioned a new automated payroll system, which we began to roll out at the beginning of July, in order to ensure that no future mistakes are made.”
The letter confirmed that the pay mistakes were not related to the Sunday higher penalty rates.
“Instead it was to do with intricacies relating to the Modern Awards, where our outdated system was not sophisticated enough to interpret and correctly calculate some rates, for example, where shifts were worked without a 12-hour break in between and when staff did not have two consecutive days off.”
The letter called the error “a dreadful shortcoming” for which Lush apologises “unreservedly”.