Wage theft laws Australia

Wage Theft Laws Australia 2026: Criminal Penalties Explained

What Changed in January 2025?

Wage underpayment became a criminal offence.

Before January 2025, underpaying employees was a civil matter. The Fair Work Ombudsman issued compliance notices. Employers paid penalties.

Now it’s different. Intentional underpayment is criminal. The Fair Work Ombudsman can refer cases to the Australian Federal Police or Commonwealth Director of Public Prosecutions.

This matters because criminal = jail time. Not just fines.

The Penalties (They’re Serious)

For individuals (directors, owners, managers):

Up to 10 years imprisonment
Up to $1.565 million fine
Or both

For companies:

Up to $7.825 million fine
Or three times the underpayment amount
Whichever is greater

Example: You underpay 10 employees by $5,000 each over 2 years ($50,000 total). The company faces $150,000+ in penalties (three times underpayment) PLUS the $50,000 must be repaid.

That’s $200,000+ in costs. Plus your business gets publicly named on the Fair Work Ombudsman website. Permanently.

What Counts as Wage Theft?

Intentionally underpaying wages or entitlements:

Salary shortfalls
Award underpayment
Unpaid superannuation
Missing leave entitlements (annual, long service, sick)
No payslips issued
Incorrect tax withholding

Key word: Intentionally. Accidental underpayment due to genuine mistakes is NOT caught by these laws.

But here’s the trap: If you discover an underpayment and don’t fix it promptly, it becomes intentional non-compliance.

The Safe Harbour: Small Business Wage Compliance Code

Small businesses (fewer than 15 employees) have protection.

If you comply with the Voluntary Small Business Wage Compliance Code, the Fair Work Ombudsman CANNOT refer you for criminal prosecution for accidental underpayment.

What the Code requires:

Pay correctly. Use STP-compliant software. Follow awards. Calculate super on Qualifying Earnings.
Keep records. Document payroll, timesheets, awards applied, super calculations.
Review regularly. Audit payroll at least quarterly. Check award rates when they change.
Fix errors quickly. If you find an underpayment, repay it within a reasonable timeframe. Document the fix.
Train your team. Make sure whoever handles payroll understands award rates and entitlements.

Compliance doesn’t mean perfect. It means genuine effort to get it right.

The Self-Disclosure Pathway

Found an underpayment? Self-report.

You can negotiate a cooperation agreement with the Fair Work Ombudsman. Self-disclosure means:

No criminal prosecution
No Australian Federal Police referral
Civil penalties may still apply
You must repay the underpaid amounts

Self-disclosure costs money. But it costs less than jail time or $8.25 million in penalties.

Common Mistakes Small Businesses Make

Mistake 1: Ignoring award changes

Awards update quarterly. Hospitality, retail, NDIS rates change regularly. You must update payroll software when rates change.

Mistake 2: Calculating super on salary only

Super must be on Qualifying Earnings (allowances, commissions, loadings included). Using old OTE method = systematic underpayment.

Mistake 3: No payslips

Payslips must be issued within one business day of payment. Missing payslips = wage theft.

Mistake 4: Cash payments without records

“Cash in hand” with no timesheets or payroll records looks intentional. The burden of proof shifts to you.

Mistake 5: Assuming your accountant got it right

If payroll is wrong, YOU’RE liable. Not your accountant. Check your own payroll monthly.

What Small Businesses Should Do Now

Step 1: Audit your payroll

Review last 12 months:

Are award rates correct?
Is super calculated on QE or just salary?
Are all entitlements accounted for?
Do payslips match STP reports?

Step 2: Fix any gaps

If you find underpayment, calculate the amount and repay employees promptly. Document everything.

Step 3: Implement the Safe Harbour

Use STP-compliant software
Update award rates quarterly
Review payroll monthly
Keep detailed records

Step 4: Get professional help

In Campbelltown and Greater Sydney, we audit payroll compliance for small businesses.

📞 Call: 04 044 71 816

We’ll review your last 12 months, identify gaps, calculate any underpayments, and help you implement the Safe Harbour Code.