The Escarpment Group, which operates the Hydro Majestic, Lilianfels, Echoes and Parklands, has denied allegations that it is exploiting foreign workers.
The Sun-Herald reported this week that some workers at its upmarket establishments were forced to pay $480 a week for a shared room and meals, and were also working many hours of unpaid overtime.
The Fair Work Ombudsman and Department of Home Affairs both confirmed that they were investigating. A department spokeswoman said officers had visited one of Escarpment's premises in Katoomba a fortnight ago.
As the investigation is ongoing, neither could comment further.
But Escarpment's operations manager, Adam Holmes, strongly denied any claims of wrongdoing, saying exploitation allegations were "not true" and "offensive".
He said the company had a long history of hosting interns from overseas.
"The trainees apply for a training internship ... through a government approved Internship agency.
"Hydro does not charge any fees for any training. Rather we actually pay the trainee a full-time salary of at least $49,950 p.a. plus super to undertake work-based training with us for average of 12 months.
"We deny any allegations of underpayment or exploitation," he said.
Mr Holmes said the company needed to support trainees' health and safety.
"The full boarding package enables us to ensure the trainees are catered for and includes twin share accommodation, three meals, laundry, utilities, internet and Wi-Fi. This is at $67 per day or $480 per week."
This compared favourably with the international hotel school in Leura, which he said charged $495 a week for full board.
The secretary of Blue Mountains Unions and Community, Debra Smith, said: "The exploitation of overseas and local workers in the Upper Mountains hospitality industry has been a long term concern of our members. We believe the exposé about the Escarpment Group - in particular at the Hydro Majestic - is just the tip of a very nasty iceberg."
Ms Smith also said former mayor, Jim Angel, in a 2016 submission to a senate committee, said it was "common community knowledge that in the town of Katoomba there are several houses with up to 15 people living in each, of 457 visa workers, that are employed in the local tourist industry".
Macquarie MP, Susan Templeman, said all workers, whether Australian citizens or those on special visa arrangements, had a right to fair pay and conditions.
"These are serious allegations and I will be watching very closely for the outcome of these investigations."