Red Rooster franchisees have short-changed thousands of mainly young workers $645,253 in wages, according to the Fair Work Ombudsman.
The revelation follows a self-audit agreement between the fast-food chain and the Fair Work Ombudsman, signed in February 2012.
The self-audit involved a review of the employment and pay records of 3140 staff working across 106 of the company's franchise outlets.
To date, 1206 employees and former staff have been back-paid $346,285 of the total $645,253 in unpaid wages.
The Fair Work Ombudsman said it had agreed to scheduled repayment plans in some cases because some franchisees could not afford to back-pay the workers in one instalment.
The Ombusdman noted that one employer had taken out a bank loan to be able to repay outstanding wages and entitlements.
Fair Work Ombudsman Natalie James said the agency recognised that many franchises were small businesses and that trading conditions for some had been difficult.
"We have worked with Red Rooster to ensure they have adequate capacity to rectify any underpayments," she said.
Where employees could not be located, money had been paid to the Fair Work Ombudsman and was being held in trust.
However 23 franchisees have since been placed in liquidation, so some short-changed workers will never be compensated.
Ms James says a Proactive Compliance Deed agreed to by the Red Rooster established a framework for her agency and the company to work together to ensure thousands of young and casual workers were being correctly paid.
"Many of the young people working in Red Rooster franchises would have had little, or no previous work experience, and limited knowledge of their lawful entitlements," she said.
The Fair Work Ombudsman first proposed the Deed to the company after identifying a problem with the interpretation of an enterprise bargaining agreement in 2009.
The 2009 agreement was negotiated by Red Rooster with the Shop, Distributive and Allied Employees Association on behalf of most, but not all, franchise outlets.
However, when it investigated a number of complaints from Red Rooster franchise employees in 2011, the Fair Work Ombudsman found the pay rates in the agreement were below those of the Fast Food Industry Award 2010.
Red Rooster, owned by Quick Service Restaurant Holdings Pty Ltd, employs more than 7000 people across Australia.
Red Rooster employees and former staff who think they might be entitled to compensation can contact the Fair Work Ombudsman by visiting www.fairwork.gov.au or calling 13 13 94.