Cosmetics company Lush has launched a $2 million backpay scheme after admitting it underpaid as many as 5,000 employees.

Key points: The company claims it failed to update payroll infrastructure

The company claims it failed to update payroll infrastructure It has apologised and insisted the issue was not intentional

It has apologised and insisted the issue was not intentional The company has dozens of stores in Australia

The payroll error dates back to 2010 and affects both retail and manufacturing staff.

Lush Australia director Peta Granger said the error was a result of failing to update the company's payroll infrastructure.

"What has become alarmingly clear to us is that our internal payroll systems have not kept pace with our growth," Ms Granger said.

"It was irresponsible to imagine that such a manual and outdated system could work for a business of our size.

"We are sincerely sorry for letting our staff down so badly.

"We hope that they can forgive us for this monumental mistake."

'We are devastated'

The company first picked up the error last August, prompting an internal investigation, and has pledged to invest an additional $1.5 million to establish a customised system that will allow about 200,000 historic timesheets to be re-entered.

"It was a horrifying moment, completely mortifying," Ms Granger said.

"We would never intentionally underpay our staff.

"We are devastated to have gotten things so wrong."

The company expects affected employees will not begin receiving back payments until December but the payments will include interest.

Lush's people support manager Amy Lyons said the issue took eight years to identify due to a lack of oversight.

"A lot of the time our staff would raise their individual payroll concerns with their direct manager, so no-one had the oversight to be able to look at the end-to-end process and spot a pattern," Ms Lyons said.

Current and former staff can register their details online.

Lush was founded by Mark Constantine and Liz Weir in 1995, who first began hand-making herbal hair products for salons in Poole, a coastal town on the south coast of England.

The company addressed hundreds of Sydney-based manufacturing staff early on Tuesday, and released a video apology to retail staff across the country.

The company's website describes its beginnings as "humble", with Mr Constantine's wife Mo and several others joining the operation to supply products using their own recipes to The Body Shop.

Lush expanded into Australia in 1997 and now has dozens of stores across the country.