Workplace exploitation will not be stamped out without much tougher penalties for unscrupulous employers says the Fair Work Ombudsman.

Fair Work Ombudsman Natalie James on Wednesday told a parliamentary inquiry that a persistent minority of employers flouted the law and risked existing fines because they were not severe enough to act as a deterrent.

Despite having won successful prosecutions in court, Ms James admitted her office had limited capacity "to disrupt the most deliberate and systemic conduct, or to reverse the apparent culture of non-compliance in high risk industries and sectors".

"While the system is fit-for-purpose to address accidental or negligent non‑compliance, it has proven not to be fit-for-purpose when it comes to addressing the deliberate and systemic unlawfulness that some unscrupulous operators adopt as a business model," she said.

"These operators set up their business model on the basis that a successful investigation or a court imposed penalty is simply a calculated risk or the cost of doing business.

"They consider the likelihood of being caught or the quantum of the penalties to be so low, that it is worth exploiting their workforce."

The Senate Education and Employment Legislation Committee Inquiry is looking into proposed changes to the Fair Work Act.

Ms James provided the committee with examples of court-imposed penalties that fell below the likely value to the business of underpayments to workers.

"This is not all or even most employers. But it is a pernicious and persistent minority. A minority that is distorting our labour markets and tarnishing our reputation as a fair and decent place to work," she said.

"To put it simply, exploitation cannot be stamped out if the settings remain the same. If something doesn't change, the script will not change and we will continue to see these stories on the front page of our newspapers."

Fairfax Media has highlighted rampant underpayment of workers by retail businesses including 7-Eleven, Dominos, Caltex and a wide range of cafes and restaurants.

Ms James said no one single measure would fix the problem, but the package of measures contained in the proposed legislation would "go some way" to giving her office the tools it needed to combat worker exploitation.

"It will ensure my Inspectors are taken seriously. That they are not ignored," she said.

"And if they are, there will be consequences that make these operators think twice before continuing to systematically and deliberately underpay vulnerable workers."

Ms James addressed the plight of migrant workers paid as little as $10 or less per hour, well below the $17.70 federal minimum wage.

"Stories, frankly, that still shock me on occasion because of the calculated and malevolent motivations behind the appalling treatment that some migrant workers face in our country; stories about vulnerable workers being forced to withdraw cash from ATMs and hand it to their boss under threat of having their visa cancelled; and stories of young people being forced to accept payment in pizza and soft drink rather than the money they are entitled to," she said.

Ms James said the cases reflected badly on Australia and on the majority of employers who were trying to do the right thing. 

Those doing the right thing were under the pressure of undercutting from operators paying black‑market wages.

To avoid paying a price for their exploitation of workers, businesses have liquidated their companies and set up a new business. Many failed to keep records or had falsified them to make it difficult to verify the number of hours for which workers had been paid.

Some businesses had also forced employees to return cash after being paid. Employers have threatened to take away visas or jobs from overseas workers who complain about the exploitation.