Some of Australia’s largest employer groups have rejected suggestions that underpayment of workers amounts to “wage theft”, telling a Queensland parliamentary inquiry the term exaggerates the problem.

The Palaszczuk government called the hearings, which begin on Thursday, with a view to criminalising wage theft in Queensland.

Submissions to the inquiry have described how wage theft is “rampant”. Employees who steal from their workplaces face up to 10 years’ in jail. When the reverse happens, workers have to take civil action to reclaim their entitlements and there are no criminal penalties.

The Queensland Council of Unions says it has been contacted by 169 people to detail cases of wage theft since since setting up a website allowing workers to tell their stories.

The National Retail Association said wage “non-compliance” will never be eradicated because “there will always be a business operator with insufficient understanding, or insufficient scruples, for this to occur”.

The NRA acknowledged that underpayment was a problem, because it allowed businesses to undercut competitors who did the right thing by workers, but said new laws were not needed.

“In NRA’s view the exploitation of workers in any industry is not a failure of the legislation, but a failure of the wider system to educate workers in their rights under the legislation,” the submission said.

Other industry groups argued that underpayment was not necessarily theft.

The Housing Industry Association said the concept of wage theft “has been greatly exaggerated by implying that all underpayment of wages is theft”.

“The complexity of the current workplace relations framework and in particular the ... awards applicable to the residential building industry are a major contributor to underpayment that in no way should be construed as theft.”

The Australian Industry Group said criminalising underpayments “would represent a major unnecessary and unwarranted change to the industrial relations system”.

“The term ‘wage theft’ is inappropriate,” the AIG submission says. “It risks inappropriately branding employers who mistakenly underpay their employees as criminals.”

The inquiry will hear testimony this week from workers who have experienced wage theft. Submissions from workers include those in the security, retail, hospitality and disability services sectors. They include workers who say they were underpaid, were not paid entitlements or superannuation, and who were unable to recoup money owed after approaching the Fair Work Ombudsman.

Several small business operators wrote to the inquiry to express their concern about wage theft, and said that it allowed unscrupulous competitors an advantage.

Andrew Bourke from Executive Security Group said he had missed out on contracts to competitors who used subcontracting arrangements to get around obligations to staff.

“ESG has tendered for many contracts to only be rejected by clients (including government clients) who want the cheapest rate and are not worried what the security companies pay their employees or the quality of the security officers provided,” Bourke said.

“For example I lost a major contract solely on my tender price, whereas a major multinational security company won the contract only to have them outsource to a company that employ individual sub-contract staff required to hold their own ABN. Employees ... had to accept a lower rate of pay for employment with the new contractor.”

Law firm Maurice Blackburn, in a joint submission with six unions representing vulnerable workers, called for a tiered system of criminal penalties with the prospect of 10 years’ jail for the most reckless or deliberate wage theft offences.

The QCU has called on the government to establish an industrial division of the magistrates court.

“Wage theft, in our submission, can be traced to structural changes to industry that have enabled business practices that promote or attempt to hide wage theft,” the QCU submission said.

“The prevalence of wage theft also coincides with decades of restrictions on the activities of unions, particularly concerning enforcement of industrial entitlements.”