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Wage Underpayment Criminalisation: New Laws from January 2025

From 1 January 2025, intentional wage underpayment will be a criminal offence under the Fair Work Act 2009 (Cth). From 1 January 2025, intentional wage underpayment will be a criminal offence under the Fair Work Act 2009 (Cth). These reforms mark a significant step in wage underpayment criminalisation, holding employers accountable for deliberately underpaying workers. Those who engage in wage theft could face criminal charges, substantial fines, and even imprisonment. Introduced by the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth), these changes reinforce the government’s commitment to ensuring employees receive their lawful entitlements.

This article explains the key aspects of wage underpayment criminalisation, including employer obligations, penalties, compliance measures, and steps businesses should take to avoid prosecution.

Overview of Wage Underpayment Criminalisation

Previously, wage underpayment was primarily dealt with through civil penalties and back-pay orders enforced by the Fair Work Ombudsman (FWO). However, with rising concerns about deliberate wage theft, the new legislation makes intentional underpayment a criminal offence.

To be prosecuted under the new laws, the employer must have knowingly and intentionally underpaid wages or entitlements. The law does not apply to accidental or inadvertent errors, provided they are rectified promptly.

Employers who are found guilty of deliberate underpayment could face severe criminal penalties, including:

  • Individuals (e.g., business owners, directors, managers): Up to 10 years’ imprisonment and/or fines of the greater of three times the underpaid amount or $1.65 million.
  • Companies: Fines of up to the greater of three times the underpaid amount or $8.25 million.

These penalties apply only to underpayments occurring from 1 January 2025 onwards. Underpayment conduct before this date will continue to be subject to civil penalties under the previous legal framework.

Employer Obligations and Compliance Requirements

Employers must ensure they are paying employees in full and on time, in accordance with applicable awards, enterprise agreements, or employment contracts. Failure to do so with intent could result in criminal charges.

To help businesses comply, the government has introduced two key measures:

  1. Voluntary Small Business Wage Compliance Code – Small businesses that follow this code will be protected from criminal prosecution for underpayments that are inadvertent and rectified in a timely manner.
  2. Cooperation Agreements – Employers who self-report wage underpayments to the FWO may enter into a cooperation agreement. While under this agreement, the FWO cannot refer them for criminal prosecution, provided they rectify the issue.

Even if an employer is not criminally prosecuted, failing to comply with wage obligations could result in civil penalties. The new laws have also increased civil fines for underpayment, meaning that even non-intentional breaches can be costly.

Penalties for Intentional Wage Underpayment

Employers found guilty of intentional wage underpayment face significant penalties:

  • Individuals (e.g., directors, managers, HR personnel involved in deliberate underpayment):
    • Up to 10 years’ imprisonment
    • Fines of the greater of $1.65 million or three times the underpaid amount
  • Companies:
    • Fines of up to the greater of $8.25 million or three times the underpaid amount

Additionally, civil penalties for wage underpayment have increased:

  • Ordinary breaches: Up to $495,000 or three times the underpaid amount per breach.
  • Serious contraventions (where underpayment is deliberate and systematic): Up to $4.95 million or three times the underpaid amount per breach.

Steps Employers Can Take to Ensure Compliance

To avoid penalties and criminal liability, employers should take the following steps:

  • Review pay rates and classifications: Ensure employees are correctly classified under modern awards and enterprise agreements, and that their pay aligns with legal requirements.
  • Conduct regular payroll audits: Perform internal reviews to identify and rectify any potential underpayments before they escalate.
  • Maintain proper records: Keep accurate time sheets, payroll records, and employee agreements to demonstrate compliance.
  • Train payroll and HR staff: Educate staff on wage obligations, award classifications, and penalty rates.
  • Respond proactively to underpayment issues: If an underpayment is identified, rectify it immediately and consider self-reporting to the FWO to avoid criminal prosecution.

Implications for Businesses and Legal Considerations

The introduction of wage underpayment criminalisation means that business owners and company officers could face personal criminal liability if they knowingly underpay employees. This has significant legal and reputational consequences for businesses.

Employers should prioritise compliance and consider:

  • Implementing strong payroll systems to ensure correct payments.
  • Seeking legal advice on wage obligations and potential underpayment risks.
  • Entering into cooperation agreements if a historical underpayment is discovered.

As criminal wage theft cases become more common, businesses that fail to take these measures risk legal action, financial penalties, and reputational damage.

Conclusion

The criminalisation of wage underpayment is a significant development in Australian workplace law. From 1 January 2025, intentional wage theft will be a criminal offence, punishable by imprisonment and heavy fines. Employers must ensure compliance with wage laws, proactively audit payroll processes, and rectify any underpayments to avoid serious legal consequences.

Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry. 

Related: Employment law services at Jake McKinley — unfair dismissal, redundancy, underpayment, workplace conduct and restraint clauses.

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