What changed on 1 January 2025
The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 inserted new criminal offence provisions into the Fair Work Act 2009 (sections 327A–327E). For the first time at the federal level, intentionally underpaying employees is a criminal offence.
Before this, wage underpayment was a civil matter — employers faced fines and back-pay orders, but no jail time. Now the Fair Work Ombudsman can refer cases to the Commonwealth Director of Public Prosecutions for criminal prosecution.
Key word: "intentionally." The offence requires proof that the employer intentionally engaged in conduct that resulted in underpayment. Honest mistakes won't attract criminal penalties — but you'll need evidence that you took reasonable steps to comply. "I didn't know" is not a defence if you never checked.
The penalties
10 yrs
Maximum imprisonment
$1.56M
Max fine (individual)
$7.83M
Max fine (body corporate)
These are per contravention penalties. An employer systematically underpaying 10 employees across multiple pay periods could face multiple charges. The Fair Work Ombudsman has publicly stated that criminal prosecution will be reserved for the most serious cases — but the definition of "serious" is theirs to determine.
What counts as wage theft
The criminal provisions cover intentional underpayment of:
- Base pay rates — paying below the applicable Modern Award or enterprise agreement rate
- Overtime and penalty rates — not paying weekend, public holiday, or overtime rates as required
- Allowances — failing to pay tool allowances, travel allowances, or uniform allowances specified in the Award
- Leave entitlements — not accruing or paying annual leave, personal/carer's leave, or long service leave correctly
- Superannuation — not paying the Superannuation Guarantee (currently 12%) to all eligible employees
- Termination payments — not paying out accrued leave or notice periods on termination
The civil penalty regime remains for non-intentional breaches — and those penalties were also significantly increased by the Closing Loopholes amendments.
The Voluntary Small Business Wage Compliance Code
Recognising that small businesses often lack dedicated HR or payroll expertise, the government introduced the Voluntary Small Business Wage Compliance Code. This applies to employers with fewer than 15 employees.
If you can demonstrate that you followed the code's steps, it becomes a relevant factor in any enforcement decision. The code requires:
- Identifying the correct Modern Award(s) for your employees
- Classifying employees at the correct level within the Award
- Paying at or above the minimum rates for that classification
- Keeping compliant records (pay slips, time records, employment contracts)
- Regularly checking for Award updates and pay rises
- Seeking professional advice when unsure
Common underpayment mistakes
Most underpayment isn't malicious — it's the result of complexity and ignorance. The most common errors:
- Wrong Award classification — applying the wrong Award or the wrong level within an Award. With 121 modern Awards, this is easy to get wrong.
- Annualised salary shortfalls — putting employees on a salary that was calculated to cover overtime and penalties, but falls short when actual hours are reconciled
- Missing penalty rates — not paying Saturday, Sunday, or public holiday rates as specified in the Award
- Casual loading miscalculation — paying a flat rate instead of the base rate + 25% casual loading
- Super on overtime — not paying super on overtime when the Award or agreement requires it
- Unpaid training time — not paying employees for mandatory training, meetings, or opening/closing procedures
How to protect your business
The best protection is demonstrable, proactive compliance:
- Identify your Awards — know exactly which Modern Award(s) cover each employee and at which classification level
- Audit your pay rates — compare what you're actually paying against the current Award rates (updated 1 July each year)
- Check your records — ensure pay slips, time records, and contracts meet Fair Work requirements
- Review superannuation — confirm you're paying 12% SG to all eligible employees, including casuals earning over $450/month (threshold removed)
- Set calendar reminders — Award rates change annually. Set a reminder for 1 July each year.
- Document your efforts — keep records of the steps you've taken to comply. This is your evidence of good faith.