Wage theft is now a crime in Australia: what employers need to know

What changed

The Fair Work Act was amended by the Closing Loopholes reforms, creating a new criminal offence. This offence relates to the intentional underpayment of employee entitlements. The change commenced on 1 January 2025.

The new offence specifically targets instances where an employer intentionally withholds or reduces entitlements owed to an employee. It is important to recognise that the reforms do not criminalise unintentional errors or mistakes in calculating wages.

Alongside the introduction of the criminal offence, civil penalties for wage underpayment have also increased. This means that employers face greater financial consequences for failing to meet their obligations regarding employee pay and entitlements.

The penalties

The introduction of criminal penalties for wage theft means significant consequences for those who deliberately underpay employees. Individuals found to have committed this offence may face imprisonment of up to 10 years.

For both companies and individuals, the maximum fines are substantial. These fines are calculated as the greater of three times the amount of the underpayment, or a penalty-unit cap. Employers can use the penalty estimator to gain a better understanding of potential financial implications.

It is important to recognise that civil penalties remain in place. These penalties apply to situations where the underpayment was not intentional, operating alongside the new criminal sanctions.

The small-business safe harbour

A Voluntary Small Business Wage Compliance Code exists to offer a degree of protection for eligible employers. Compliance with this Code provides a safe harbour, meaning a small business will not be referred for criminal prosecution if it has made an underpayment.

The Code’s purpose is to encourage small businesses to prioritise accurate wage payments and to address any mistakes quickly. It focuses on the actions businesses take to ensure correct payments and the prompt rectification of any underpayments that are identified.

The Code’s effectiveness depends on demonstrating a commitment to wage compliance. This includes:

• Taking reasonable steps to pay correctly.
• Fixing errors promptly when they are found.

How to stay compliant

To minimise the risk of wage theft contraventions, employers should focus on several key areas. Underpayment frequently results from issues such as misapplied award classifications, incorrect penalty rates, and errors relating to superannuation. Addressing these common sources of error is a fundamental step in ensuring compliance.

Preparing for the changes coming into effect from 1 July 2026 is also crucial. Payday Super requirements mean superannuation must be paid within 7 business days of each pay event. This increased frequency will make reconciliation errors more apparent and require greater attention to detail. Employers should begin assessing their readiness now Payday Super readiness.

The most effective defences against allegations of wage theft involve demonstrating proactive compliance measures. These include conducting regular pay audits, ensuring accurate award mapping to employee classifications, and promptly correcting any identified errors.