Wage theft is now criminal: what employers need to know (effective 1 January 2025)

What changed on 1 January 2025?

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced a new federal criminal offence for intentional underpayment of employee entitlements. The offence took effect 1 January 2025.

Penalties:

• Individuals: up to 10 years imprisonment + 3× the underpayment (or $1.65M if greater)
• Corporations: 3× the underpayment (or $8.25M if greater)

This sits on top of the existing civil penalty regime under s 539 Fair Work Act.

What counts as 'intentional' underpayment?

The offence requires that the employer:

• Was required to pay an amount under the Fair Work Act, an award, an enterprise agreement, etc.
• Engaged in conduct that resulted in underpayment
• Was reckless as to whether the conduct would result in underpayment, OR
• Had the intention to underpay

Honest mistakes — even significant ones — are not the offence. Civil penalty proceedings remain available for non-intentional underpayments.

The Voluntary Small Business Wage Compliance Code

The Fair Work Ombudsman has published a Voluntary Small Business Wage Compliance Code. Small businesses (under 15 employees) that comply with the Code are protected from criminal prosecution for the offence.

Compliance with the Code involves: classifying employees correctly, using appropriate pay tools, reviewing pay rates when laws change, and self-correcting where errors are identified.

The Code is voluntary but compliance is a strong defensive posture for SMBs.

What the FWO will look at

In assessing whether to refer matters for criminal prosecution, the FWO will consider:

• Scale — how many employees affected, how much underpaid
• Duration — was the underpayment a one-off or sustained
• Cooperation — did the employer self-disclose, cooperate with investigation
• Remediation — has the employer back-paid + remediated systems
• Recurrence — prior FWO history

Self-disclosure and active remediation are powerful mitigating factors. Concealment, delay, and refusal to cooperate weight toward criminal referral.

Civil penalties (still in force)

Even outside criminal prosecution, civil penalties for underpayment increased dramatically in 2024:

• Standard contraventions: up to $93,900 per breach (individuals), $469,500 per breach (corporations)
• Serious contraventions (deliberate or systemic): 10× the standard, plus uncapped 3× benefit
• Sham contracting offences also penalised separately

How to audit your payroll

The high-risk patterns FWO routinely identifies:

1. Salaried employees not getting their award entitlements — set-off clauses don't extinguish weekly award rights; reconcile every pay period, not annually
2. Misclassified casuals doing predictable rosters — likely permanent in effect, owed leave entitlements
3. Trainees / apprentices on the wrong wage scale for their year of training
4. Penalty rates for late nights, weekends, public holidays — high error rate in retail / hospitality
5. Allowances — laundry, meal, vehicle, on-call — frequently missed
6. Overtime — both for award-covered staff and as displaced annualised arrangements
7. Superannuation — OTE definitions for bonuses, allowances, leave loading

Annual reconciliation against full award entitlements is essential. If you find errors, don't wait.

Self-disclosure and remediation

If you discover historical underpayment:

1. Calculate the full back-pay — interest at the prescribed rate
2. Pay employees ASAP — backed by transparent communications
3. Self-disclose to FWO — use their Self-Reporting tool
4. Fix the system — payroll configuration, classification reviews
5. Document the response — board minutes, audit reports, fix tracker
6. Consider an Enforceable Undertaking if FWO opens engagement

Major examples — Woolworths, Coles trolley-collectors, 7-Eleven, Made Establishment / Calombaris — show that self-disclosed underpayments are typically resolved without criminal referral, but only with full remediation and cooperation.