Wage theft now attracts criminal liability: what small businesses need to know

From 1 January 2025, changes to the Fair Work Act 2009 (FW Act) mean that intentional underpayment of wages can be a criminal offence. In February 2025 we spoke with James True, then Employment Practice Leader at LegalVision, for his insight on the matter. Here’s what you need to know about the law and how the Voluntary Small Business Wage Compliance Code, which also started on 1 January 2025, can help.

Wage theft explained

An employer may commit the offence if they were required to pay an amount to an employee (such as wages or paid leave) or on their behalf (such as superannuation or a salary sacrifice amount), and they intentionally did something, or intentionally failed to do something, that resulted in it not being paid on time. Honest mistakes are not a criminal offence, but underpayments of any kind can still lead to civil penalties, which can be costly and damaging to your reputation.

The Fair Work Ombudsman (FWO) can investigate and refer matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police. For offences from 1 July 2026, a company faces a maximum fine of the higher of three times the underpayment or $9.1 million. An individual faces up to 10 years’ imprisonment, a fine of up to the higher of three times the underpayment or $1.82 million, or both. These amounts are linked to the Commonwealth penalty unit, which is indexed. The offence covers amounts payable under the Fair Work Act, an award, an agreement or a contract of employment. It does not cover long service leave under state laws, and some sole traders and partnerships in referring states are excluded for super and long service leave. Check your position with an employment lawyer.

This development follows growing public and regulatory focus on ensuring employees receive their correct entitlements, including minimum wages, loadings, allowances, and overtime rates.

“We have seen increased scrutiny from the Fair Work Ombudsman in relation to its audit enforcement activities,” says James True, then Employment Practice Leader at LegalVision. Historically, businesses might have received a slap on the wrist for underpayments, but significant penalties are now the norm. Equally, news agencies are increasingly interested in reporting underpayments, so businesses will face greater reputational damage.”

The Voluntary Small Business Wage Compliance Code

To help small businesses, the FWO publishes the Voluntary Small Business Wage Compliance Code. While primarily aimed at small businesses (defined as having fewer than 15 employees), the Code is a practical guide for any employer. If the FWO is satisfied that a small business employer complied with the Code in relation to an underpayment, the FWO must not refer the conduct for criminal prosecution. The Code doesn’t rule out civil action to recover the underpayment.

For more information, you can access the FWO’s full guidance.

How employers can reduce their risk of prosecution

Before becoming aware of underpayment:

• Employers can demonstrate compliance by making reasonable efforts to determine correct pay rates and entitlements. This involves:
• Consult official sources: Carefully review the applicable modern award or enterprise agreement alongside relevant FW Act provisions.
• Ensure accuracy: Use reliable information about employee roles, classifications, qualifications, and work arrangements.
• Seek advice: Consult reliable sources such as employer associations, lawyers, workplace relations consultants, payroll processing services, or the Fair Work Ombudsman.
• Stay informed: Keep up-to-date with changes to workplace laws and employee conditions.

After becoming aware of underpayment:

Taking swift action is key to reducing the risk of prosecution:

• Prompt repayment: Rectify underpayments immediately by repaying affected employees.
• System improvements: Address underlying payroll errors to prevent future issues.
• Proactive audits: Conduct regular payroll reviews to identify and resolve compliance gaps early.

“While any efforts you make to stop underpayments are crucial for determining your liability, fixing the problem is just as important,” Mr True says. “Many businesses notify the Fair Work Ombudsman of the underpayment. This approach has pros and cons, but if you’re going to do it, do so on the back of a well-thought-out remediation process, along with actions that demonstrate that any future risk of underpayments has been dealt with.”

Factors reducing criminal prosecution risk

Employers are less likely to face criminal charges if:

• the underpayment resulted from an honest mistake in payroll processes (which is not a criminal offence);
• ambiguities or competing interpretations of the FW Act led to errors, provided the employer made a reasonable effort to comply;
• the issue was identified during a voluntary payroll compliance audit; and
• prompt corrective action was taken to minimise the financial impact on employees.

Expert legal insights

The industrial relations landscape in Australia is complex, and determining employees’ various entitlements can be very difficult.

“It’s not uncommon to see instances of underpayment or other non-compliance in a business, no matter its size or industry,” Mr True says. He recommends that all employers take proactive steps to understand those entitlements and regularly audit their business to ensure compliance. “Being on the front foot and identifying a problem yourself, rather than having an employee or the Fair Work Ombudsman discover it, may save you from significant penalties, litigation and public backlash,” he says.

Take action today

At Visory, we understand that staying compliant with changing workplace laws can be challenging for small businesses. The wage theft laws are a reason for every employer to check their payroll is accurate and their systems keep up with award changes. By following the Voluntary Small Business Wage Compliance Code, small businesses can lower their risk and keep their payroll practices transparent.

Proactive payroll management and expert advice can better protect your business from costly penalties and reputational damage. Visory runs payroll for growing businesses, with a dedicated team and its AI, Delphi, overseen by that team. As the employer, you remain responsible for your obligations, and we help you meet them. Book a discovery call to find out how we can support your business.

Special thanks to James True, then Employment Practice Leader at LegalVision, for his input in this guide.

At the time of writing, James advised across all areas of employment, including employment and independent contractor agreements, termination of employment (including redundancy and unlawful termination), employment disputes, investigations, modern awards, work health safety obligations and notifiable incidents. Before joining LegalVision, James spent almost 10 years working in private practice across employment and work health safety.