Criminalising Intentional Wage Underpayments Under the Fair Work Act

On 1 January 2025, new laws came into effect in Australia criminalising wage underpayments by employers and increasing civil penalties. The changes, implemented through amendments to the Fair Work Act, make wage theft a criminal offence punishable by hefty fines and the possibility of prison time.

What is an underpayment and when is it wage theft?

Wage theft is the deliberate underpayment of employee wages, superannuation, and other employment entitlements. An employer (whether a company or an individual) may commit a criminal offence where they:

were required to pay an employee an amount, such as wages, leave entitlements, superannuation, or under a salary sacrifice arrangement, under the Fair Work Act 2009 or an industrial instrument
intentionally failed to pay these amounts on or before the due date.

The offence applies to:

underpayments that occur after the provisions come into effect
ongoing underpayments that started before 1 January 2025.

The most common type of wage theft is unpaid overtime.

New criminal offence for intentional underpayment

What makes a payment intentional?

Under the new legislation, intentional wage theft constitutes a criminal offence. Intent involves deliberate actions to underpay employees, with penalties applying only when intent can be proven.

Standard of proof

Criminal prosecution requires intent and proof beyond a reasonable doubt.
Civil penalties apply for negligence or recklessness without intent.

Importantly, “intentional” can also be imputed based on the conduct of an employer. This means an employer may be considered to have engaged in intentional wage theft even if they didn't mean to underpay employees. For example, conduct may be deemed intentional if the employer's actions (or failure to act) were deliberate and resulted in underpayment, regardless of their asserted intentions.

Voluntary Small Business Wage Compliance Code

To support businesses, the Voluntary Small Business Wage Compliance Code was introduced alongside a guide provided by the Fair Work Ombudsman. The Code is not a checklist; businesses do not need to meet all factors for compliance. However, it offers a framework to:

help identify and correct unintentional underpayments
protect businesses from criminal prosecution if they demonstrate compliance with the Code.

While it was designed for small businesses it can be used by organisations of any size.

Key points assessed under the Code include:

taking reasonable steps to work out correct pay rates and entitlements
staying up to date with changes in workplace laws
relying on accurate employee information for payroll
seeking advice from reliable sources when needed
fixing underpayments promptly and preventing recurrence
cooperating with inquiries or investigations.

More details, including a checklist and practical tips, are available in the Fair Work Ombudsman’s guide. Guide to Paying Employees Correctly and Voluntary Small Business Wage Compliance Code

Paying my my employees correctly: new wage theft laws and strategy

Penalties in the new wage theft laws

The following criminal and civil penalties may apply:

Criminal penalties

Individuals: Up to $1,565,000 in fines or 10 years imprisonment.
Companies: Up to $7,825,000 per offence.

Courts may impose penalties up to three times the amount of the underpayment if higher than the maximum fine.

Civil penalties

Increased for "serious contraventions" by companies with 15 or more employees.
The threshold for "serious contraventions" now includes knowing or reckless conduct.

Fair Work Ombudsman powers

The Fair Work Ombudsman has been granted expanded powers to:

investigate wage theft and enforce compliance
issue compliance notices requiring employers to calculate and back-pay underpayments
refer criminal matters to the Commonwealth Director of Public Prosecutions (DPP) or the Australian Federal Police for prosecution.

Note: Only the police or DPP can bring criminal prosecutions.

Self-reporting and cooperation

To encourage accountability, employers who voluntarily disclose underpayments may:

enter cooperation agreements with the Ombudsman to avoid criminal prosecution for specified conduct
use the Small Business Wage Compliance Code to demonstrate good faith in resolving errors.

Employer action required

To comply with the new laws and avoid penalties, employers should:

review and update employee classifications and pay rates
regularly audit payroll systems for errors
correct any identified underpayments and back-pay affected employees promptly
self-report underpayments to the Ombudsman and seek a cooperation agreement
adopt the Voluntary Small Business Wage Compliance Code if applicable
maintain accurate employee records and payslips
stay updated on any future legislation changes.

While honest mistakes can occur, employers must act swiftly to correct underpayments and seek professional advice if unsure.

Summary

The criminalisation of wage theft highlights the importance of fair pay practices. Businesses must take proactive steps to ensure compliance with workplace laws to avoid severe penalties. Employers who act responsibly by addressing underpayments, cooperating with investigations, and staying informed can significantly reduce legal risks.

For further resources, visit the FWO website.

Elker's connection with the topic

Staff who report pay anomalies internally provide the organisation with an important safety net. For this to happen, it's important to encourage staff to check their pay and provide an easy way for them to speak up (anonymously or with a name) to have any anomalies checked early.

We partner closely with our clients to provide central pathways and anonymous reporting tools. We also develop analytics dashboards that show trends early and clearly.

Through our work across diverse industries, we've seen firsthand the importance of thoughtful, strategic implementation when it comes to encouraging staff to report concerns. With Elker, you'll have a trusted partner to help you navigate the complexities, develop a tailored plan, and embed ethical practices within your organisation's DNA.

Ready to build a better workplace? Book a call today.

Frequently asked questions

Is wage theft illegal in Australia?

Yes, wage theft is illegal in Australia under the Fair Work Act 2009. As of 1 January 2025, the underpayment of wages and entitlements is a criminal offence if done intentionally. Employers who deliberately fail to pay workers their full amounts owed can face large fines and even jail time.

The new criminal offence requires an element of intention. Employers will not face criminal charges if the underpayment was due to unintentional errors or miscalculations. However, there may be civil penalties for negligence.

Irrespective of criminal liability, all underpayments are still illegal and employers must back-pay any amounts owed. Underpayments can also attract civil penalties through the Fair Work Ombudsman.

How do I report wage theft in Australia?

If you believe you have been underpaid or have not received your full entitlements, you can report this to the Fair Work Ombudsman. The Ombudsman is the government body responsible for enforcing compliance with workplace laws, including investigating wage theft.

You can make an anonymous report on the Fair Work Ombudsman website or by calling them on 13 13 94. You will need to provide as much information as possible, such as your employer's details, your employment details, the alleged underpayments, and any supporting evidence like payslips.

Before reporting, you can also try raising the issue directly with your employer. They may have made an honest mistake that they are willing to promptly correct. If you are a union member, your union may also be able to assist you.

What companies are being wage theft in Australia?

Many companies across various industries have been accused of wage theft in Australia in recent years. Large corporations have admitted to or been investigated for underpaying workers.

However, wage theft is not limited to big business. Underpayments are rampant in several sectors that employ a high proportion of young and migrant workers, such as hospitality, retail, horticulture, and cleaning.

It's important to note that not all underpayments are necessarily intentional wage theft. Payroll errors happen and Australia's workplace laws are complex. What matters is whether an employer deliberately underpaid workers and how they respond when underpayments are identified.

What is the most common form of wage theft?

The most common forms of wage theft are:

Underpayment of hourly rates: paying workers less than the legal minimum wage or the correct award/agreement rate for their classification
Unpaid overtime: not paying penalty rates for overtime hours or expecting workers to work extra time for free.
Unreasonable deductions: taking money out of workers' pay unlawfully, e.g. for breakages, till shortages or customer theft.
Withholding entitlements: not paying workers for entitlements owed such as annual leave, long service leave, sick leave or superannuation.
Sham contracting: misclassifying workers as independent contractors rather than employees to avoid paying minimum wages and entitlements.
Unpaid trial work/internships: getting jobseekers or young workers to perform productive work without pay under the guise of "training" or "gaining experience".
Unauthorised deductions for accommodation or training: unlawfully making workers pay for things that the employer is responsible for providing, like job-specific training, uniforms or housing.

The prevalence of each type of wage theft varies by industry, occupation and workforce demographics. However, underpayment of base hourly rates is generally the most common overall.