Wage Theft Archives

New Criminal Underpayment Laws have Started

BAS Agent's Blog, Payroll & Superannuation / By Louise McLoughlin / 23 April 2025 / Criminal Underpayment Laws, Fair Work, payroll, Super, Wage Theft / 3 minutes of reading

New Criminal Underpayment Laws began on 1 January 2025. It is now an offence to underpay your staff. If found guilty, you may face hefty fines or jail time, or both. Read on to find out what these laws mean and how you can avoid a conviction going forward.

What are these laws?

Employers found to be intentionally underpaying staff by Fair Work, will be investigated. If a case can be raised, it will be referred for criminal prosecution. If an employer is convicted, he/she may face prison time and/or fines (see below).

Employers who have made an honest mistake and did not intend to underpay staff, will not be prosecuted.

How to protect yourself

Fair Work has created the Voluntary Small Business Wage Compliance Code. This Code can be used to check if you are paying your staff correctly. Employers who have complied with the Code in relation to an underpayment, cannot be referred for possible criminal prosecution by Fair Work. Therefore, if you suspect that you may have underpaid staff, it is in your best interests to review the above Code ASAP!

Another way to protect yourself is to write an Cooperation Agreement. This is an agreement between Fair Work and an employer that outlines a possible underpayment event. While the agreement is in force, Fair Work cannot refer the matter for possible criminal prosecution, however, civil enforcement may apply regardless.

Which fines and prison time can apply?

For a company

If the court can determine the amount of the employer’s underpayment, the maximum fine will be the higher of:

3 times the amount of the underpayment
$8.25 million.

If the court can’t determine the amount of the underpayment, the maximum fine is $8.25 million.

For an individual

The court can impose a maximum of 10 years in prison or a fine, or both.

If the court can determine the amount of the employer’s underpayment, the maximum fine will be the higher of:

3 times the amount of the underpayment
$1.65 million.

If the court can’t determine the underpayment, the maximum fine is $1.65 million.

How to avoid all of the above

Simple really! Good employers do two things:

1. Stay up to date with payroll obligations including changes to awards, legislation and employees’ circumstances such as their roles, duties, classifications, relevant qualifications, age, hours of work or location of work.

2. Reach out to reliable sources for help when difficult payroll situations arise. These may include bookkeepers, tax agents, payroll HR associations, payroll processing services, industrial associations and Fair Work.

If you are reading this and are concerned about your situation, now might be the time to reach out to your tax professional and ask for assistance. Fair Work mean business!!

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Wage Theft Legislation is Coming! Review your Payroll Now!

On 1 January 2025, Wage Theft Legislation will be enacted. This legislation is part of the Federal Government’s “Closing Loopholes” laws which effectively change the Fair Work Act.

Wage Theft Legislation will make it a criminal offence to underpay wages deliberately. Penalties could be $7.825 million or more for a company and $1.565 million or more for an individual and/or 10 years in prison. The Fair Work Ombudsman will be responsible for investigating possible wage theft cases.

These are very hefty penalties indeed. No one wants to be at the pointy end of these new laws therefore, in my opinion, reviewing your payroll set-up now and ensuring it is completely compliant, would be a good idea. To that end, conducting a payroll audit is necessary.

How to Audit Your Payroll Set-up

A payroll audit includes a review of payroll practices, systems and outcomes, all underpinned by complex regulations that vary at the federal, state and territory levels. It looks at employee classifications, pay rates, entitlements, and record-keeping.

The Fair Work Ombudsman has provided a step-by-step guide to auditing your payroll. You can download it here. The guide assists in reviewing payroll records, assessing the findings and finally, providing solutions for any issues raised.

Further to the above guide, the Australian Payroll Association recommends taking these 5 steps to assist with the audit process:

Engage a Specialist – a payroll specialist can review your current set-up and identify any gaps or areas of risk that require addressing.
Educate your Team – make sure your team is across the new Wage Theft Legislation. Provide training and education in any areas of payroll legislation in which your team are lacking.
Leverage Technology – Modern payroll systems help avoid non-compliance issues. If your payroll technology is outdated or not up to par with Australian requirements, consider upgrading to a system that automates calculations and processes for better compliance.
Document Everything – Ensure all payroll processes are well-documented and records are meticulously kept to prove compliance, aid transparency, and defend your organisation in disputes.
Regular Reviews – Once your payroll is fully compliant, ensure regular payroll audits are conducted to catch and correct any discrepancies before they create significant issues.

With the introduction of Wage Theft Legislation, employers are encouraged to be proactive and conduct a thorough payroll audit to ensure compliance. Doing this now, and making it a regular process going forward, will ensure that employers are well-placed to avoid becoming embroiled in criminal proceedings and potential sanctions.