As of 1 January 2025, wage theft isn't just a civil matter anymore – it's become a criminal offence that can land employers in prison for up to 10 years. This is the most significant change to workplace compliance in decades for HR professionals across Australia.
The new criminal underpayment laws under the Fair Work Act 2009 have created a two-tier system where honest mistakes remain civil matters, but intentional wage theft now carries criminal penalties that rival those for serious fraud.
What makes this particularly challenging is that these laws don't just apply to blatant cases of wage theft. They can capture patterns of conduct that began before 1 January 2025, meaning historical underpayments could suddenly become criminal matters if they're part of ongoing deliberate conduct. The stakes have never been higher, and the time for action is now.
Read on to find out everything you need to know about wage theft laws and criminal underpayment in Australia ⬇️
The introduction of criminal penalties was a response to a massive and growing problem. According to the Australian Council of Trade Unions, wage theft affects over one million Australian workers, with particularly severe impacts on vulnerable groups including women, young people, and migrant workers.
The Fair Work Ombudsman's own data tells a sobering story. In the three years leading up to these reforms, the FWO recovered more than $473 million in unpaid wages and entitlements for workers. The Super Members Council estimates that unpaid superannuation alone cost workers $5.1 billion in 2021-22, with cumulative losses of almost $41.6 billion over nine years.
The key numbers are ⬇️
This represents real people whose financial security has been undermined by employers who view wage theft as a business strategy rather than a crime.
The criminal underpayment provisions were introduced through the Fair Work Legislation Amendment (Closing Loopholes) Act 2023, which received Royal Assent on 14 December 2023. The centrepiece of these reforms is the new Section 327A of the Fair Work Act 2009, which creates the criminal offence of intentional underpayment.
Under Section 327A, an employer commits a criminal offence if they:
The key word here is "intentionally". This isn't about genuine mistakes or system errors – it's about deliberate conduct designed to avoid paying employees what they're legally owed.
The legislation casts a wide net over what constitutes a "required amount". According to the Fair Work Ombudsman, this includes:
Essentially, if the Fair Work Act or an industrial instrument requires you to pay it, it's covered by the criminal provisions.
One of the most significant aspects of these new laws is how they attribute criminal liability to corporations. Unlike other parts of the Fair Work Act, the criminal underpayment provisions use the Criminal Code Act 1995 (Cth) to determine corporate liability.
This means a corporation can be criminally liable if it can be proved that:
One of the most groundbreaking aspects of these laws is how they establish personal liability for corporate executives and HR professionals. Recent cases have shown that the "turning a blind eye" defence no longer holds water. HR managers have been personally fined amounts ranging from $92,232 to $105,084 for knowing about underpayments and failing to act.
The corporate culture test means that companies can be held criminally liable if they fail to establish and maintain a culture that promotes wage compliance. This means demonstrating through actions and systems that wage compliance is a genuine priority.
Key factors in establishing corporate culture include:
Criminal proceedings for wage theft must be commenced within six years of the offence. While this provides some certainty for employers, it also means that current underpayment issues could potentially be prosecuted well into the future. For HR professionals, this emphasises the importance of addressing compliance issues immediately rather than hoping they'll be forgotten over time.
The criminal penalties for wage theft are severe and designed to act as a significant deterrent:
For individuals:
For corporations:
The Voluntary Small Business Wage Compliance Code provides crucial protection for businesses with fewer than 15 employees. This threshold is consistent with other Fair Work Act provisions and is calculated based on the number of employees at the time of the underpayment.
While the Voluntary Small Business Wage Compliance Code provides crucial protection for businesses with fewer than 15 employees, all employers can benefit from understanding the broader protection mechanisms available.
The Code Assessment Process: The Fair Work Ombudsman doesn't use a simple checklist approach. Instead, they conduct a holistic assessment of an employer's conduct, considering factors such as:
Critical Limitation: The Code only protects against criminal prosecution – it doesn't prevent civil penalties, compliance notices, or other enforcement actions. This means small businesses can still face significant financial penalties even if they avoid criminal charges.
Beyond Small Business: Larger employers can't rely on the Code, but they can still demonstrate good faith through:
The Fair Work Ombudsman (FWO) plays a crucial role in the new enforcement framework. While they cannot initiate criminal prosecutions directly, they have the power to:
The Fair Work Ombudsman has developed a sophisticated enforcement strategy that prioritises cases based on their potential impact and deterrent value. Understanding this approach helps HR professionals assess their risk profile and compliance priorities.
High-priority cases:
Investigation process:
Timeline considerations:
The public interest test is crucial in determining which cases proceed to criminal prosecution. According to the Fair Work Ombudsman's Compliance and Enforcement Policy, factors considered include:
The FWO has significant investigation powers, including the ability to:
These powers are the same whether the investigation is for civil or criminal matters, but the stakes are obviously much higher for criminal investigations.
Cooperation agreements represent a significant opportunity for employers who discover they may have committed criminal underpayment offences. These are written agreements between the employer and the Fair Work Ombudsman that provide protection from criminal prosecution in exchange for voluntary disclosure and cooperation.
Employers who voluntarily report potential criminal conduct can seek to enter into a cooperation agreement, which:
However, cooperation agreements don't prevent the FWO from taking civil enforcement action, and they don't provide blanket protection for future conduct.
Beyond the basic cooperation agreement framework, sophisticated employers are implementing advanced strategies to demonstrate good faith and reduce legal risk.
Early Warning Systems:
Proactive Disclosure Programs:
Documentation Standards:
Industry Collaboration:
Here's a practical checklist for HR professionals to implement immediately:
Assessment and documentation
System and Process Review
Training and Communication
Policies and Procedures
Subject: Important Update: Payroll Review and Correction
Dear [Employee Name],
We are writing to inform you of an important matter regarding your employment entitlements. As part of our ongoing commitment to workplace compliance, we have identified that you may have been underpaid certain entitlements during the period [date range].
What We've Found:
What We're Doing:
Your Rights:
Next Steps:
If you have any questions or concerns, please don't hesitate to contact [HR Contact] on [phone number] or [email address].
We sincerely apologise for this error and are committed to ensuring it doesn't happen again.
Regards, [HR Manager/CEO Name] [Company Name]
Subject: Payroll Correction - Payment Confirmation
Dear [Employee Name],
This email confirms that the payroll correction of $[amount] has been processed and will appear in your pay on [date].
Payment Details:
Breakdown: [Detailed breakdown of calculation showing period, rates, hours, etc.]
Ongoing Improvements: We have implemented the following measures to prevent similar issues:
Your Feedback: Your feedback is important to us. If you have any questions about this payment or suggestions for improvement, please contact [HR Contact].
Thank you for your patience and understanding as we work to maintain the highest standards of payroll compliance.
Regards, [HR Manager Name] [Company Name]
The criminal underpayment laws are just the beginning of a broader reform agenda. HR professionals should be aware of several upcoming changes:
Right to Disconnect (Small Business): From 26 August 2025, small business employees will have the right to disconnect from work communications outside of working hours.
Casual Conversion Changes: New pathways for casual employees to convert to permanent employment are being introduced, with significant implications for payroll and entitlement calculations.
Award Modernisation: Ongoing award modernisation processes may result in changes to pay rates and conditions across various industries.
The new criminal underpayment laws represent a fundamental shift in how wage compliance is treated in Australia. HR professionals who adapt quickly and build robust compliance frameworks will be best positioned to navigate this new landscape.
Key principles for building resilience include:
Technology will play an increasingly important role in wage compliance. HR professionals should consider:
SubscribeHR understands the unique challenges facing Australian HR professionals. Our cloud-based HR platform is specifically designed for the Australian market, offering seamless integration with leading payroll systems to create a unified compliance ecosystem.
Discover SubscribeHR's Australian HR Solutions →
This article is for general information purposes only and does not constitute legal advice. For specific advice about your situation, please consult with a qualified employment lawyer or contact the Fair Work Ombudsman. The landscape of employment law continues to evolve, and readers should ensure they have the most current information when making compliance decisions.