Wage Theft in Australia: What Employers Need to Know

Wage theft moved from an industrial relations problem to a criminal one on 1 January 2025, and most Australian employers still run payroll on systems and habits built before that shift. The change is narrower than the headlines suggested, and wider than many employers assume. It does not punish the business that miscalculates an allowance and fixes it. It does reach the business that knows an underpayment is happening and lets it continue.

This guide sets out what the offence covers, the penalties that follow a conviction, the two protections available to employers who come forward, and the payroll practices that keep a business out of the question entirely.

Written by the Sentrient team. Sentrient provides workplace compliance solutions to Australian businesses, including policy, training and record-keeping tools that support wage compliance obligations.

What exactly is wage theft in Australia?

Wage theft is the intentional underpayment of amounts an employer is required to pay an employee. That covers wages and paid leave entitlements, and it covers amounts payable on behalf of or for the benefit of an employee, such as superannuation contributions or a salary sacrifice arrangement.

The word that carries the weight is intentional. The Fair Work Ombudsman is explicit that the criminal offence does not capture honest mistakes. An employer commits the offence where they were required to pay an amount and have intentionally done something that intentionally results in the amount not being paid on or before the day it was due.

Intentional conduct runs both ways. It includes doing something, such as paying below an employee’s minimum entitlement on purpose, whether that is the base hourly rate, penalty rates, overtime or allowances. It also includes failing to do something, such as deliberately not paying an employee at all.

Why wage theft became a criminal matter

The criminal offence arrived through the Closing Loopholes reforms and commenced on 1 January 2025. It sits alongside a separate set of civil changes that have been in force since 27 February 2024 and that matter just as much for day-to-day risk.

Those civil changes raised the maximum penalties a court may impose for certain contraventions, and they lowered the bar for what counts as a serious contravention. The old test asked whether a business knew it was contravening and whether the conduct was part of a systematic pattern. The test now asks whether the contravention was knowing or reckless. Recklessness is a materially easier threshold for a regulator to establish than a systematic pattern, and it brings conduct into scope that would previously have sat outside it.

For employers with 15 or more employees, the maximum penalty for an underpayment contravention can, in certain circumstances, be the greater of three times the value of the underpayment or the relevant penalty unit amount.

What penalties do employers face for wage theft?

A criminal conviction can result in fines, imprisonment, or both. The maximums differ for companies and individuals.

Liability is not limited to the employing entity. Other individuals or companies can be prosecuted for conduct relating to an offence, including aiding an employer to commit it. Directors, payroll managers and external advisers are not insulated by the corporate structure.

Some exceptions apply. For employees in New South Wales, South Australia, Queensland, Tasmania and Victoria who are employed by sole traders, partnerships, other unincorporated entities or non-trading corporations, and for most Victorian state government employees and Tasmanian local government employees, the criminal offence provisions do not apply to superannuation contributions, long service leave payments, leave connected with being the victim of a crime, or jury duty and emergency services leave. The provisions still apply to other wages and entitlements for those employees.

The threshold question for most employers is not whether they would ever deliberately underpay. It is whether they could demonstrate, from their own records, that they did not. Intention is proved from evidence, and the evidence is the payroll trail: who set the classification, when the rate was reviewed, what happened when a discrepancy was raised. A business with a documented process can show the error was a mistake. A business running on recall and goodwill may be telling the truth and still struggle to show it.

Which businesses are most at risk of wage theft issues?

Risk concentrates where payroll complexity meets thin administrative capacity. The pattern is consistent across enforcement activity.

• Businesses running staff across several modern awards, where classification errors compound quietly
• Operations with heavy casual and shift loadings, where penalty rates and overtime interact
• Franchise networks, where payroll decisions are made locally against a brand standard set centrally
• Businesses that have grown past the 15-employee threshold without revisiting their obligations
• Organisations relying on manual timesheets or spreadsheets rather than a system with an audit trail
• Employers of visa holders and young workers, where the employee is least likely to query a payslip

Size alone is not protective. The criminal provisions apply whether the employer is an individual or a company, and a small business that ignores a known underpayment is exposed in the same way as a large one.

Two further patterns deserve attention. The first is the business that inherited a payroll configuration from a predecessor or an acquisition and has never tested it against the award. The configuration was correct for a workforce that no longer exists. The second is the long-tenured employee whose role grew over years without a classification review, so the pay reflects the job they were hired for rather than the one they now do.

How does the Fair Work Ombudsman investigate wage theft?

The Fair Work Ombudsman investigates suspected criminal underpayment offences. Where it considers there is sufficient evidence, it refers suitable matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for consideration and possible prosecution.

The decision to refer turns on whether there is enough evidence and whether referral is in the public interest, with the factors set out in the regulator’s Compliance and Enforcement Policy. The Fair Work Ombudsman cannot itself start criminal proceedings. Only the Commonwealth Director of Public Prosecutions and the Australian Federal Police can do that.

Separately, the regulator can issue a compliance notice requiring an employer to calculate the underpayment owed and pay it. Courts can order an employer to comply with the terms of such a notice, wholly or partly.

What is a cooperation agreement, and when does it help?

An employer who voluntarily discloses conduct that could be a criminal offence can seek a written cooperation agreement with the Fair Work Ombudsman. Where an agreement is in place, the regulator will not refer the conduct specified in it for possible criminal prosecution.

The protection is bounded. A cooperation agreement does not end the matter. The regulator may still take other enforcement action, including civil litigation, and the underpaid amounts remain payable. What the agreement removes is the criminal referral for the disclosed conduct.

The sequence matters. The protection attaches to voluntary disclosure, which means it is available to the employer who comes forward and not to the one who waits to be found.

What is the Voluntary Small Business Wage Compliance Code?

A small business employer cannot be referred for criminal prosecution by the Fair Work Ombudsman where the business has underpaid an employee and the regulator is satisfied the business complied with the Voluntary Small Business Wage Compliance Code.

The Code is a practical standard rather than a form to file. It asks whether the employer took reasonable steps to work out and pay the correct entitlements. Evidence of those steps is what the regulator assesses, which makes record-keeping the substance of the protection rather than an administrative afterthought.

The Fair Work Ombudsman publishes a guide to paying employees correctly alongside the Code, with a checklist, case studies and practical guidance for small business employers.

What steps can employers take to prevent wage theft?

Prevention is a payroll governance problem rather than a legal one. Six practices carry most of the weight.

1. Conduct regular payroll audits

Schedule them rather than running them in response to a complaint. An audit cycle that samples each award classification, each shift pattern and each allowance type will surface drift before it compounds into years of liability.

2. Invest in compliant payroll systems

A system that interprets awards, applies penalty rates automatically and retains a change history does two jobs. It reduces the error rate, and it produces the evidence an employer needs if a payment is ever questioned.

3. Stay updated on award changes

Modern award rates and conditions change. Assign the monitoring to a named role with a documented review point rather than leaving it to whoever notices.

4. Train managers and payroll staff

Most underpayments begin as a classification or rostering decision made by a line manager, not as a payroll error. Training the people who make those decisions addresses the cause rather than the symptom.

5. Maintain accurate records

Records are both an obligation and a defence. Where the Code or a cooperation agreement is in play, the quality of the record is what the regulator assesses.

6. Implement clear classification policies

Write down how roles map to award classifications and who approves a change. Undocumented classification decisions are where disputes start and where intent becomes arguable.

How do you conduct an effective payroll audit?

An effective audit tests the system rather than confirming it. A workable sequence runs as follows.

1. Establish which modern award or agreement covers each employee, and record the reasoning for each classification
2. Take a sample of pay periods across the full roster pattern, including the weeks most likely to attract penalty rates
3. Recalculate gross pay from raw time records rather than from the payroll system’s own output
4. Check allowances, loadings and superannuation separately, since these are the most commonly missed
5. Compare the result to what was paid, and document every variance with its cause
6. Quantify the exposure across the whole affected population, not only the sample
7. Record the findings, the decisions taken and the dates, because this record is the evidence of reasonable steps

What should employers do if they discover underpayments?

Act on it, document it, and consider disclosure early. An underpayment that is found, calculated and rectified is an administrative problem. An underpayment that is known and carried is the conduct the offence was written to reach.

Practical sequence: stop the ongoing error first, quantify the full historical exposure, pay the affected employees including superannuation, communicate with them in writing, and record the whole process. Where the conduct could amount to an offence, take advice on whether a voluntary disclosure and a cooperation agreement are appropriate before the regulator arrives independently.

What are the most common misconceptions about wage theft?

How are modern awards affecting wage compliance?

Modern awards are the practical source of most underpayment exposure. A business covered by several awards is managing several sets of classification structures, penalty rate tables, allowance schedules and overtime rules at once, and each changes independently.

The failure mode is rarely a wrong hourly rate. It is a correct rate applied to the wrong classification, or a penalty rate that was right when the roster was designed and wrong after the roster changed. Mapping roles to classifications in writing, and reviewing that mapping when work changes, removes the largest single source of error.

What role does technology play in preventing wage theft?

Technology reduces two risks. It cuts the error rate by applying award rules consistently instead of relying on recall, and it produces the audit trail that evidences reasonable steps if a payment is questioned later.

The value is in the record as much as the calculation. Systems that retain who approved a classification, when a rate changed and why, convert a verbal process into evidence. Where the Voluntary Small Business Wage Compliance Code or a cooperation agreement is relevant, that evidence is what the regulator assesses.

Three practical limits are worth setting before a system is chosen. Confirm it supports every award that applies to the workforce rather than the common ones. Confirm the audit trail is retained for the full seven-year record-keeping period and is exportable. Confirm that someone owns the configuration, because an award update that nobody applies leaves the system confidently wrong.

Technology does not remove the obligation. A system configured against the wrong award produces wrong pay reliably and at scale.

What industries are facing the most scrutiny?

Enforcement attention follows the same conditions that create risk: award complexity, casual workforces, and employees less likely to challenge a payslip. Hospitality, retail, agriculture, cleaning and security, aged care and disability services, and higher education have all drawn sustained regulator and media attention.

Sector is a prompt rather than a verdict. An employer in a sector with little history of enforcement attention is subject to the same provisions.

What has changed since commencement is the cost of inattention. Before 2025 an unnoticed underpayment produced a back-payment and a penalty. The same facts, with knowledge added, now carry a referral path to the Commonwealth Director of Public Prosecutions. The practical response is not alarm. It is a payroll process that can be evidenced, and a disclosure decision taken early rather than late.

Frequently asked questions

What is the difference between accidental underpayment and criminal wage theft?

Intention. The criminal offence requires that the employer intentionally engaged in conduct that intentionally resulted in the amount not being paid when due. The Fair Work Ombudsman states plainly that honest mistakes are not covered. An accidental underpayment remains a civil matter and the money remains owed.

Can I be prosecuted for wage theft that occurred before the 2025 laws?

The offence applies to intentional underpayments that happen after the provisions took effect on 1 January 2025. It can reach conduct forming part of a course of conduct that started before that date, but the underpayment itself must occur after commencement. Earlier conduct remains subject to the civil provisions.

Do wage theft laws apply to all businesses regardless of size?

Yes. An employer can be an individual or a company, and size does not create an exemption. A small business that has complied with the Voluntary Small Business Wage Compliance Code cannot be referred for criminal prosecution by the Fair Work Ombudsman, but that protection depends on compliance with the Code rather than on size alone.

How long do employers need to keep payroll records?

Employee records must be kept for seven years under the Fair Work Regulations. Given that the Code and cooperation agreements both turn on evidence of what the employer did and when, records are worth retaining in a form that shows decisions and approvals, not only final figures.

What evidence does the Fair Work Ombudsman need to pursue criminal charges?

Enough evidence to support a referral, assessed against the public interest, with the factors set out in its Compliance and Enforcement Policy. Because the offence turns on intention, evidence that the employer knew of the underpayment and continued is central.

How can businesses manage wage compliance across multiple worksites?

Centralise the rules and decentralise the execution. Classification mapping, award interpretation and approval authority should be set and documented centrally, with site managers operating inside them. The common failure is each site making its own classification calls with no central record.

Will my insurance cover wage theft penalties?

Criminal fines are generally not insurable in Australia as a matter of public policy, and policies commonly exclude deliberate wrongdoing. Underpaid wages themselves are a debt owed to employees rather than an insurable loss. Check the specific policy wording with your broker.

Sources

Fair Work Ombudsman, Criminal prosecution: https://www.fairwork.gov.au/about-us/compliance-and-enforcement/criminal-prosecution

Fair Work Ombudsman, Criminalising wage underpayments and other issues: https://www.fairwork.gov.au/about-us/workplace-laws/legislation-changes/closing-loopholes/criminalising-wage-underpayments-and-other-issues

Fair Work Act 2009, sections 327A to 327C and 717A to 717B.

Last reviewed: 27 October 2026.

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Attend our FREE wage theft webinar for a walkthrough of the obligations and the practical steps for employers.