Workplace Compliance

Wage Theft in Australia: What Employers Need to Know in 2025

Wraps up in 12 Minutes

Author: Gavin Altus

Published On May 26, 2025

The landscape of workplace compliance in Australia has dramatically shifted in 2025, with wage theft now firmly in the spotlight. For business owners and HR professionals, understanding these changes isn’t just good practice – it’s essential protection against severe penalties that could impact your organisation’s financial health and reputation.

Recent legislation has transformed how underpayment is viewed and prosecuted across the nation. What was once considered an administrative oversight is now potentially a criminal offence with substantial consequences for non-compliance.

What exactly is wage theft in Australia?

Wage theft encompasses any deliberate underpayment of employee entitlements under Australian workplace laws. This includes more than simply paying incorrect base rates – it extends to various forms of financial short changing that employees might experience.

Common forms of wage theft include:

Paying below the minimum wage or award rates
Failing to provide overtime, penalty rates, or allowances
Unauthorised deductions from employee pay
Non-payment or underpayment of superannuation
Withholding leave entitlements
Misclassifying employees as contractors

Many employers don’t realise they’re committing wage theft until it’s too late. What might begin as a simple payroll error can escalate into significant legal troubles when left uncorrected.

Why has wage theft become such a critical issue in 2025?

Wage theft has gained unprecedented attention due to several converging factors in the Australian business landscape. High-profile cases across hospitality, retail, and other sectors have shone a spotlight on the issue and accelerated legislative responses.

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024, which took effect on 1 January 2025, represents the most significant shift. This legislation has elevated wage theft from a civil matter to a potential criminal offence under Commonwealth law.

Public awareness has also dramatically increased, with employees becoming more informed about their entitlements and more willing to report suspected underpayment. Social media has amplified these voices, creating reputational risks alongside legal ones.

What penalties do employers face for wage theft in 2025?

The penalties introduced in early 2025 reflect the seriousness with which Australia now treats wage theft. They serve as a powerful deterrent for non-compliance and demonstrate the government’s commitment to protecting workers’ rights.

Type of Offender	Criminal Penalties
Individuals (directors, managers)	Up to 10 years’ imprisonment and/or fines up to AUD 1.565 million
Corporations	Fines up to AUD 7.825 million or three times the underpayment amount (whichever is greater)

Beyond these criminal penalties, employers may also face:

Civil penalties for less serious breaches
Compensation orders to repay workers with interest
Enforceable undertakings with the Fair Work Ombudsman
Public naming and reputation damage
Loss of employee trust and increased turnover

These consequences make wage compliance a board-level concern rather than simply a HR or payroll issue.

Which businesses are most at risk of wage theft issues?

While wage theft can affect organisations of all sizes, certain business types face heightened vulnerability. Understanding risk factors can help employers take appropriate preventative measures.

Businesses with higher risk profiles typically include:

Hospitality and retail with complex award structures and casual workforces
Franchises where individual operators manage their own payroll systems
Small and medium enterprises without dedicated HR resources
Organisations employing workers under multiple different awards
Businesses with outdated manual payroll processes

Industries experiencing rapid growth or seasonal fluctuations may also find themselves at higher risk as systems struggle to keep pace with changing workforce needs.

How does the Fair Work Ombudsman investigate wage theft?

The Fair Work Ombudsman (FWO) has received expanded powers since January 2025 to monitor and enforce compliance with wage laws. Understanding their approach helps employers prepare for potential scrutiny.

The FWO typically initiates investigations through:

Employee complaints or tip-offs
Targeted campaigns focusing on high-risk industries
Random compliance audits
Reports from other government agencies
Media coverage of suspected underpayment

During investigations, the FWO can request access to employment records, conduct interviews with management and staff, and issue compliance notices. Their investigators now have powers similar to law enforcement when investigating potential criminal wage theft.

The FWO also works collaboratively with the Commonwealth Director of Public Prosecutions to bring criminal charges in serious cases of deliberate wage theft.

What is the Voluntary Small Business Wage Compliance Code?

An important development accompanying the new wage theft legislation is the Voluntary Small Business Wage Compliance Code. This code provides small businesses with a pathway to avoid criminal prosecution.

Key features of the code include:

Eligibility for businesses with fewer than 15 employees
Requirements to undertake specific compliance measures
Regular self-audits and documentation of compliance efforts
A defence against criminal prosecution when the code is followed
Registration and compliance reporting obligations

Small business owners should familiarise themselves with this code immediately. While it doesn’t exempt businesses from civil penalties or back-payment obligations, it provides protection from the most severe criminal consequences.

The code recognises the unique challenges faced by small employers and creates a proportionate compliance framework focused on education and prevention.

What steps can employers take to prevent wage theft?

Preventing wage theft requires a proactive, systematic approach to payroll compliance. These practical measures can significantly reduce your organisation’s risk exposure.

1. Conduct regular payroll audits

Schedule comprehensive audits at least quarterly, comparing actual payments against award or agreement requirements. Consider using external specialists for an objective assessment of your compliance.

2. Invest in compliant payroll systems

Manual processes and basic spreadsheets increase error risk. Modern payroll software with built-in award interpretation capabilities can automatically calculate correct entitlements.

3. Stay updated on award changes

Awards and minimum standards change regularly. Subscribe to Fair Work updates and industry association notifications to ensure your payroll systems reflect current requirements.

4. Train managers and payroll staff

Everyone involved in the payment process should understand compliance obligations. Regular training on award interpretation and payroll procedures is essential.

5. Maintain accurate records

Accurate time, attendance, and payment records are your best defence. The Fair Work Act requires records to be kept for seven years and to meet specific content requirements.

6. Implement clear classification policies

Develop robust processes for correctly classifying employees under appropriate awards and employment types. Regularly review position descriptions against award classifications.

How do you conduct an effective payroll audit?

A thorough payroll audit is your first line of defence against wage theft allegations. Understanding the process helps ensure compliance before issues arise.

The most effective payroll audits follow these key steps:

Select a representative sample of employees across different roles
Review classification and award interpretation for each employee
Verify actual hours worked against payroll records
Cross-check payment calculations against relevant award provisions
Identify any patterns of potential underpayment or miscalculation
Document findings in a comprehensive audit report

Consider conducting both scheduled quarterly audits and surprise spot checks. This dual approach helps identify both systemic issues and potential manipulation of records.

Best practice includes engaging external specialists periodically to provide an independent assessment. Their expertise often identifies compliance gaps that internal teams might overlook.

What should employers do if they discover underpayments?

Discovering underpayments doesn’t automatically lead to criminal prosecution, particularly if you take appropriate remedial action. How you respond can significantly impact legal and reputational outcomes.

When underpayments are identified:

Calculate the full extent of underpayments, including interest
Communicate openly with affected employees about the issue
Repay all amounts owed promptly and in full
Consider self-reporting to the Fair Work Ombudsman
Review and correct systems to prevent recurrence

The 2025 legislation includes cooperation provisions that may protect employers who voluntarily disclose and rectify underpayments from criminal prosecution, though civil penalties may still apply.

It’s important to understand that only “intentional” underpayments trigger criminal provisions. Honest mistakes or administrative errors, while still requiring correction, typically don’t result in criminal charges when addressed promptly.

What are the most common misconceptions about wage theft?

Several misconceptions persist among employers that can increase wage theft risk. Recognising these false assumptions is crucial for compliance.

“Small underpayments aren’t worth worrying about”

Even minor underpayments can accumulate into significant liabilities over time. Authorities view the pattern of underpayment as more concerning than the individual amounts.

“Our employees haven’t complained, so we must be compliant”

Many employees don’t recognise underpayment or fear retaliation for speaking up. Lack of complaints doesn’t indicate compliance or protection against future claims.

“Employment contracts override award entitlements”

Contracts cannot legally provide less than the relevant modern award or National Employment Standards, regardless of what’s written or agreed upon.

“Paying above award rates covers all obligations”

Higher base rates don’t automatically absorb penalty rates, allowances, or overtime entitlements unless properly structured as part of a formal agreement.

“Our industry has always operated this way”

Industry practices that don’t comply with workplace laws offer no protection against prosecution. “Everyone does it” is not a valid legal defence.

How are modern awards affecting wage compliance?

Modern awards remain the primary source of employee entitlements for many Australian workers, and their complexity continues to challenge employers in 2025.

Award complexity manifests in several ways:

Frequent variations and updates to rates and conditions
Multiple classifications within a single award
Different penalty rates for various times and days
Special provisions for particular types of work
Interactions between awards and enterprise agreements

The Fair Work Commission conducts regular reviews of modern awards, meaning employers must constantly monitor for changes that impact payment obligations.

Small variations in how awards are interpreted can lead to significant underpayments when applied across multiple pay periods or employees. This makes expert advice particularly valuable.

What role does technology play in preventing wage theft?

Technology has become an essential ally in the fight against wage theft. Modern compliance solutions offer powerful tools to help employers meet their obligations consistently.

Effective technological solutions provide:

Automated award interpretation and payment calculation
Real-time visibility of potential compliance issues
Digital record-keeping that meets Fair Work requirements
Audit trails for all payment decisions and changes
Integration between time-tracking and payroll systems

Compliance management platforms now offer AI-powered analytics that can detect unusual patterns in payroll data. These systems flag potential issues before they become systemic problems requiring expensive remediation.

Technology also facilitates better documentation of decision-making processes. This evidence trail proves invaluable if your organisation faces investigation or needs to demonstrate good faith compliance efforts.

Forward-thinking employers are now implementing comprehensive compliance platforms that integrate policy management, training, and payroll verification into cohesive systems.

What industries are facing the most scrutiny over wage theft?

The Fair Work Ombudsman maintains targeted enforcement strategies for industries with higher rates of non-compliance. Understanding these focus areas helps employers gauge their risk level.

Industries under heightened scrutiny in 2025 include:

Hospitality (restaurants, cafés, catering)
Retail and fast food
Agriculture and horticulture
Cleaning and security services
Construction and manufacturing
Franchising across all sectors

Recent crackdowns have specifically targeted labour hire arrangements and supply chain accountability. Principal contractors are increasingly being held responsible for underpayments occurring within their contractor networks.

The FWO’s industry-specific campaigns often involve surprise site visits, deep record reviews, and employee interviews. Businesses in these sectors should prioritise proactive compliance measures.

Conclusion

Wage theft has become a defining compliance issue for Australian employers in 2025. With criminal penalties now in force since January, organisations must elevate their approach to payroll compliance from administrative process to strategic priority.

By implementing robust systems, staying informed about legislative changes, and fostering a culture of compliance, employers can protect themselves from serious legal consequences while ensuring fair treatment of their workforce.

Preventing wage theft isn’t just about avoiding penalties – it’s about building trust with employees and maintaining your organisation’s reputation in an increasingly transparent business environment.

Sentrient provides comprehensive workplace compliance solutions that help Australian businesses navigate these challenges with confidence. Our integrated platform combines policy management, compliance training, and audit tools to create a robust defence against wage theft risks.

FAQs

1. What’s the difference between accidental underpayment and criminal wage theft?

Criminal wage theft requires proof of deliberate or reckless underpayment. Honest mistakes, while still requiring rectification, typically don’t attract criminal penalties if promptly addressed.

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

The criminal provisions generally don’t apply retrospectively. However, civil penalties and back-payment obligations still apply to historical underpayments.

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

Yes, the laws apply universally to all employers in Australia, regardless of size or industry. However, small businesses can gain protection from criminal penalties by following the Voluntary Small Business Wage Compliance Code.

4. How long do employers need to keep payroll records to comply with regulations?

Employers must retain complete and accurate employment records for at least seven years. This includes timesheets, pay records, superannuation contributions and leave accruals.

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

The FWO must establish that underpayments were deliberate or reckless, not merely accidental. This generally requires proof of awareness or intentional ignorance regarding payment obligations.

6. How can businesses manage wage compliance across multiple worksites?

Centralised payroll systems, consistent training, regular audits, and clear communication channels between locations are essential for multi-site compliance management.

7. Will my insurance cover wage theft penalties?

Most insurance policies explicitly exclude coverage for criminal penalties. Civil penalties and back-payment obligations may also be excluded, depending on policy terms.