In a significant shift aimed at curbing exploitative workplace practices, the criminalisation of wage theft in Australia has become a criminal offence. This change, which came into effect on 1 January 2025, was part of a broader suite of reforms under the Closing Loopholes legislation. These reforms aim to enhance protections for workers, tackle wage underpayment, and hold employers accountable for unlawful practices.
What Is Wage Theft?
Wage theft occurs when an employer deliberately withholds, underpays, or fails to pay employees for their work. This can include failing to pay the correct wages, superannuation contributions, or employee entitlements under the Fair Work Act 2009 (FW Act) or applicable awards and enterprise agreements. However, the new law targets intentional underpayment, meaning employers who deliberately underpay or fail to meet their obligations will be subject to criminal penalties. Unintentional mistakes or miscalculations are not covered by the offence, but employers must still be diligent in ensuring compliance with workplace laws.
The Criminal Wage Theft Offence: Key Features
The offence will apply when employers intentionally engage in conduct that results in the underpayment of their employees’ entitlements. These entitlements may include wages, penalty rates, superannuation, and other benefits defined by the FW Act, modern awards, or enterprise agreements.
The penalty for criminal wage theft can be severe. The law allows for:
- A maximum fine of three times the amount of the underpayment (if the court can calculate the amount), or
- For individuals: A fine of up to 5,000 penalty units (approximately $1.56 million).
- For corporate entities: A fine of up to 25,000 penalty units (around $7.82 million).
- In some cases, up to 10 years imprisonment for individuals.
Employers who intentionally underpay their employees, leading to repeated or systemic underpayment across a workforce, could face these substantial fines and/or imprisonment.
What Does This Mean for Employers?
The introduction of criminal penalties for wage theft is a wake-up call for Australian businesses. With the criminalisation of wage theft in Australia, employers now face increased legal and financial risks. The potential fines, combined with the possibility of jail time for individuals, mean that the stakes have never been higher. Employers must take proactive steps to ensure full compliance with workplace laws.
Here’s how these changes will impact businesses:
- Increased Legal and Financial Risks
Employers who intentionally underpay workers or fail to meet their obligations face significant risks, including fines and criminal prosecution. The risk extends to both large corporations and smaller businesses. - Diligence in Wage and Entitlement Management
Employers must implement strict payroll systems. Regular audits are essential to ensure compliance. All employees must receive correct entitlements, including wages, superannuation, penalty rates, and overtime pay. - Cooperation Agreements for Self-Disclosure
The Fair Work Ombudsman (FWO) encourages employers to self-report underpayment. Cooperating with the FWO may allow businesses to avoid criminal prosecution and instead face non-punitive measures, such as compliance notices or civil action. - The Voluntary Small Business Wage Compliance Code
The new law introduces the Voluntary Small Business Wage Compliance Code. Small businesses demonstrating compliance with the Code may avoid criminal prosecution for unintentional underpayment. However, the Code only applies to unintentional errors, and small businesses must stay informed about its final details. - Higher Standards for Employee Entitlements
Employers must meet all requirements of modern awards and enterprise agreements. This includes paying correct wages, keeping accurate records, and maintaining up-to-date payslips, particularly in sectors like hospitality where penalty rates and holiday pay are common.
What Does the New Legislation Mean for Small Businesses?
The new wage theft laws bring particular challenges for small businesses, which may lack the resources to implement complex payroll systems. However, the Voluntary Small Business Wage Compliance Code provides an avenue for small businesses to protect themselves against criminal charges, as long as they demonstrate a genuine effort to comply with workplace laws.
While small businesses that follow the Code will not face criminal prosecution for unintentional underpayments, they must remain vigilant. The Code, which is being developed in consultation with employers and employee groups, will help businesses navigate compliance with the Fair Work Act and its associated regulations. Small business owners should take full advantage of the resources and support offered by the FWO, including the Employer Advisory Service, which can assist in understanding compliance obligations.
What Steps Should Employers Take Now?
With the criminalisation of wage theft looming, employers must act quickly to mitigate risks. Here are some key steps businesses can take:
- Review Payroll Systems
Ensure your payroll systems are accurate and capable of tracking employee entitlements in accordance with awards, enterprise agreements, and the Fair Work Act. This includes checking that all hours worked, overtime, and leave entitlements are accurately recorded. - Conduct Regular Audits
Regular audits of your payroll practices can help identify any discrepancies or underpayments. Employers should regularly check that all employees are receiving their correct entitlements. - Provide Training for Management
All managers and decision-makers should be trained in the new wage theft laws. This will ensure they understand their responsibilities, the potential penalties for non-compliance, and the importance of accurate wage management. - Familiarise Yourself with the Small Business Code
Stay informed about the Voluntary Small Business Wage Compliance Code, which will be finalised in 2025. Once available, make sure you understand its requirements and ensure your business meets the standards outlined in the Code. - Engage with the FWO
If you suspect that your business may have unintentionally underpaid employees, consider reaching out to the Fair Work Ombudsman for advice and guidance. Early intervention can prevent larger problems down the road.
Conclusion
The criminalisation of wage theft in Australia is a landmark development in Australian employment law. Employers must be proactive in understanding their obligations and ensuring they are fully compliant with the Fair Work Act. For businesses that fail to meet these obligations, the consequences are severe, including significant fines and potential imprisonment. However, for those who are committed to compliance and transparency, there are pathways to avoid criminal prosecution and rectify any mistakes. By staying informed, implementing robust payroll systems, and engaging with the FWO when necessary, employers can protect themselves and their employees from the negative impacts of wage theft.
If you require qualified legal advice, our experienced team of solicitors at Jake McKinley are here assist. Please get in touch with us on 02 9232 8033, office@jakelaw.com.au or here to make an enquiry.
