Laws criminalising wage theft now in effect

As we usher in the new year, businesses across the country face a significant shift in their payroll responsibilities.

As of 1 January 2025, it is now a criminal offence for employers to intentionally underpay their employees. The changes have come into effect following the passage of the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 and the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024.

Payroll management has been thrust into the spotlight and what may have been once considered an administrative oversight could now lead to significant consequences for employers including imprisonment, increased civil penalties, and reputational damage.

This is a timely reminder for businesses to meticulously review their payroll practices and address any discrepancies to avoid breaching these new regulations.

The offence

Under the Closing Loopholes legislation, an offence will be committed where:

• an employer is required to pay an amount (including wages, allowances and superannuation) to an employee under the Fair Work Act 2009 (Cth) or an industrial instrument; and
• the employer engages in conduct that results in a failure to pay the required amount to the employee in full on or before the day when the required amount is due for payment.

It must be proven that the employer intentionally engaged in the conduct, and underpayments which are accidental, inadvertent or are the result of a genuine mistake will not be captured by the new offence.

Consequences for non-compliance

Criminal penalties

For an individual (which could include CEO’s, payroll and finance managers), the maximum penalty is either 10 years’ imprisonment, a court imposed fine (the greater of, three times the value of the wage underpayment or $1.5 million), or both.

For a company, the maximum court imposed fine is the greater of, three times the value of the wage underpayment or $7.8 million.

Civil penalties

In addition to the new criminal penalties, the existing civil penalties for underpayments have significantly increased for large businesses.

Protections for employers

The Closing Loopholes legislation includes some ‘safe harbour’ provisions for employers. Specifically:

• Small businesses (with fewer than 15 employees) will be able to adhere to the Voluntary Small Business Wage Compliance Code; and
• Large businesses (with 15 or more employees) will have the opportunity to self-report suspected wage theft to the Fair Work Ombudsman and can enter into a ‘cooperation agreement’.

It is important to note that while these provisions may safeguard employers from criminal prosecution, civil penalties (such as compliance notices or enforceable undertakings) may still be imposed by the Fair Work Ombudsman.

Voluntary Small Business Wage Compliance Code

On 16 December 2024, the Minister for Employment and Workplace Relations issued a declaration of a Voluntary Small Business Wage Compliance Code (Code).

Small businesses will be exempt from criminal prosecution where the Fair Work Ombudsman is satisfied that they’ve complied with the Code in relation to an underpayment.

A small business employer will comply with the Code if they don’t intend to underpay their employees. A small business’s intention will be assessed by looking at several factors, that include but are not limited to, whether the employer:

• took reasonable steps to work out correct rates of pay and entitlements;
• made reasonable efforts to stay up to date with changes to their obligations and workplace laws;
• sought information or advice from a reliable source about paying employee entitlements correctly; and
• took steps to fix any underpayments.

Increased right of entry powers

It is also important to note that from 1 July 2024, the Fair Work Commission (Commission) was granted the ability to issue exemption certificates to union officers, waiving the required 24 hours’ notice of entry, if:

• the suspected contravention involves an underpayment; and
• the Commission reasonably believe that advance notice of entry would hinder an effective investigation.

What should businesses be doing?

To mitigate the risk of underpayments, employers should:

• review the modern award or enterprise agreement that covers their business to ensure all employees are correctly classified;
• invest in and deliver comprehensive training for key team members in payroll, human resources, and retail managers on employee entitlements and rostering obligations; and
• conduct wage compliance audits to ensure business payroll practices and/or software are compliant and correctly applying the relevant pay rules.

Importantly, if businesses uncover discrepancies in their payroll practices, they are encouraged to seek independent legal advice as soon as practicable.

How we can help

NRA Legal regularly assist employers in understanding their obligations with respect to wage compliance by:

• conducting comprehensive assessments of industrial instrument coverage and classifications;
• facilitating rostering compliance training for payroll specialists, human resources personnel and retail store managers;
• reviewing payroll software configuration; and
• conducting wage compliance audits.

If you’d like to learn more about our services or your obligations with respect to the criminalisation of wage theft, please call our Workplace Relations Hotline on 1800 RETAIL (738 245) for a confidential conversation.