Two days after Woolworths' boss was threatened with jail for holding the Senate in contempt, the company faced Melbourne Magistrates Court where it pleaded guilty to more than 1000 charges.

Woolworths is facing a maximum penalty of more than $10 billion over the offending, prosecutors said on Thursday.

Barrister Kathleen Crennan, acting for the Wage Inspectorate Victoria, said the regulator was contacted in February 2022 by lawyers for Woolworths after it undertook a review of its payroll systems.

The supermarket chain discovered it was not paying some employees their long service leave entitlements after they left Woolworths, due to discrepancies in how those payments were being calculated.

Ms Crennan said the inspectorate investigated and found the underpayments occurred for former Woolworths and Woolstar workers on 3617 occasions between January 2020 and July 2022.

The regulator took the case to court and charged Woolworths for those who were underpaid sums of more than $250, which resulted in about $1 million in unpaid leave for 1227 former Victorian staff.

Woolworths' barrister Saul Holt KC admitted it was an "interesting week" to be discussing the supermarket in open court.

"But Woolworths is much more than some headlines and a senate inquiry," he said.

He said Woolworths was described as "a model accused" by the prosecution, as it had self-reported and self-investigated the underpayments to the regulator.

"Woolworths is an exemplary employer," he said, adding it was a major employer of young people aged under 25.

Mr Holt said the proposed $10 billion maximum penalty was "extraordinary" and asked the magistrate not to dole out such a high penalty as it could discourage other employers from self-reporting.

"There's an incredibly important policy imperative in encouraging employers ... to say when 'we find anomalies, we're not just going to fix them in the future, we're going to go back and check'," he said.

Woolworths has since paid back most of the underpaid after alerting them via text message, email and post, and paid those they could not get in contact with into their last known bank account, he said.

Ms Crennan said Woolworths, as a major corporation with ample resources, should have put in place mechanisms to prevent the underpayments from occurring in the first place.

"With a corporation of these resources, across jurisdictions, there's really no excuse for this to have happened," she said.

Magistrate Nahrain Warda asked why it took so long for Woolworths to discover the payroll issues, given it had changed systems in 2016.

"Why is it not until 2020 that the testing is, in essence, to ensure there are no anomalies? One would think that would be ongoing," she said.

"Woolworths can't escape from the fact that over that period those anomalies were not picked up, that should not have occurred and would not have occurred now because we know more," Mr Holt replied.

Woolworths will be sentenced on April 24.

Australian Associated Press