Wage Theft Is Now a Criminal Offence in Australia: Employer's Guide

On 1 January 2025, the Fair Work Amendment (Closing Loopholes No. 2) Act 2024 inserted Part 3A-1 into the Fair Work Act 2009. That addition made intentional underpayment of employee entitlements a criminal offence in Australia for the first time. Individuals face up to $1.65 million in fines and 10 years in prison. Companies face up to $8.25 million per contravention.

If you run payroll, manage leave, or are responsible for employment compliance in any capacity, this changes your risk profile permanently. Here is what the new laws mean, how they apply to leave and entitlements, and what you need to do right now.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult an employment lawyer or the Fair Work Ombudsman for guidance specific to your organisation.

What the New Wage Theft Laws Cover

Part 3A-1 of the Fair Work Act makes it a criminal offence for a person to intentionally engage in conduct that results in a failure to pay a employee one or more amounts that are owed under the Fair Work Act, a Fair Work instrument (such as a Modern Award or enterprise agreement), or a transitional instrument.

The key word is intentional. Honest mistakes, administrative errors, and genuine misunderstandings of complex award provisions are not criminal under these provisions. However, increased civil penalties still apply to all underpayments, regardless of intent.

What “Intentional” Means

Under the legislation, a person acts intentionally if they:

• Know that the conduct will result in a failure to pay an amount owed, or
• Are reckless as to whether the conduct will result in a failure to pay

This covers a deliberate decision to underpay, but it also covers situations where an employer simply does not care whether employees are being paid correctly. Turning a blind eye to obvious payroll errors can cross the threshold from civil to criminal.

What Constitutes Intentional Underpayment

The Fair Work Ombudsman has identified several patterns of conduct that are likely to be treated as intentional:

• Knowingly applying incorrect pay rates — setting a rate below the award or agreement minimum and being aware it is too low
• Deliberately misclassifying employees — categorising a worker as a lower-grade classification to pay less, or treating an employee as a casual when they are in fact permanent
• Systematically failing to pay entitlements — ignoring overtime, penalty rates, leave loading, or allowances that are clearly owed
• Falsifying records — manipulating timesheets, rosters, or pay records to conceal underpayments
• Withholding accrued entitlements — refusing to pay out annual leave on termination, or deliberately undercalculating leave balances

Criminal Penalties: The Numbers

The penalties under Part 3A-1 are the most severe ever available under Australian workplace relations law.

Offender type	Maximum fine per contravention	Imprisonment
Individual	$1.65 million	Up to 10 years
Body corporate (company)	$8.25 million	N/A
Small business (fewer than 15 employees)	$825,000	Up to 10 years (individual)

These amounts are indexed and will increase over time. Each separate underpayment — each pay period where an employee is underpaid — can constitute a separate contravention. For a business with 50 employees underpaid over 26 fortnightly pay periods, that is potentially 1,300 separate contraventions.

Increased Civil Penalties

Even if an underpayment does not meet the criminal threshold, the civil penalties have also increased significantly.

Standard Civil Penalties

For contraventions committed on or after 1 January 2025:

• Individuals: up to $165,000 per contravention (or 3 times the amount of the underpayment, if greater)
• Companies: up to $495,000 per contravention (or 3 times the amount of the underpayment, if greater)

The “3 times the underpayment” multiplier is new and can dramatically increase penalties for large-scale underpayments. A $100,000 underpayment could attract a civil penalty of $300,000 under this provision — per contravention.

Serious Contraventions

For contraventions where the employer knowingly contravened the Fair Work Act and the conduct was part of a systematic pattern:

• Individuals: up to $1,650,000
• Companies: up to $4,950,000

The threshold for “serious contravention” is lower than the criminal threshold. It requires knowledge and a systematic pattern, but not necessarily an intention to underpay.

How This Directly Affects Leave Management

Leave-related underpayments are among the most common compliance failures the Fair Work Ombudsman identifies. The new criminal provisions apply to leave entitlements just as they apply to wages.

Leave Underpayments That Can Become Criminal

• Incorrect leave accrual — systematically under-accruing annual leave for part-time employees, or failing to account for progressive accrual
• Unpaid leave loading — deliberately not paying the 17.5% leave loading required by a Modern Award, or applying an incorrect rate
• Miscalculated termination payouts — underpaying accrued annual leave on termination, failing to include loading, or incorrectly reducing the balance
• Personal leave errors — not accruing personal leave correctly, or deducting personal leave when other leave should apply
• Long service leave shortfalls — miscalculating long service leave entitlements, which vary significantly by state and territory

If you have not yet read our Fair Work leave compliance guide, now is the time. It walks through every leave obligation under the NES and highlights the areas most commonly audited.

Enforcement: Who Investigates and Prosecutes

Criminal wage theft is not enforced by the Fair Work Ombudsman alone. The enforcement structure involves multiple agencies:

• Fair Work Ombudsman (FWO) — investigates suspected criminal underpayments and refers matters for prosecution
• Australian Federal Police (AFP) — investigates criminal wage theft matters, particularly those involving large-scale or systematic conduct
• Commonwealth Director of Public Prosecutions (CDPP) — prosecutes criminal wage theft matters in the Federal Court or relevant court

The FWO has publicly stated that it will prioritise referrals for prosecution where there is evidence of deliberate, systematic, or large-scale underpayment, particularly where vulnerable workers are affected.

Self-Reporting and Cooperation Agreements

The legislation includes a mechanism for employers who discover underpayments to self-report and potentially avoid criminal prosecution.

Fair Work Ombudsman Cooperation Agreements

An employer that voluntarily discloses underpayments to the Fair Work Ombudsman may enter into a cooperation agreement. Under such an agreement, the employer commits to:

• Fully disclosing the nature and extent of underpayments
• Cooperating with the FWO’s investigation
• Repaying all affected employees in full
• Implementing systems and processes to prevent recurrence

A cooperation agreement can prevent criminal prosecution — but it does not protect the employer from civil penalties. The FWO can still issue infringement notices or commence civil proceedings for the underpayments disclosed.

When Self-Reporting Makes Sense

Self-reporting is most beneficial when:

• The underpayment was an honest mistake that you discovered internally
• You can demonstrate good faith and a commitment to rectification
• The underpayment has not yet come to the FWO’s attention through a complaint or audit

Waiting for the FWO to find the problem first significantly reduces the benefit of self-reporting.

Practical Steps to Protect Your Organisation

Whether you are a small business owner or an HR manager at a larger organisation, these are the steps you should take now to reduce your risk under the new criminal provisions.

1. Audit Your Payroll and Leave Systems

Conduct a thorough review of your current payroll setup. Focus on:

• Award classification — Is every employee classified under the correct award and at the correct grade?
• Base rates of pay — Do all rates meet or exceed the applicable award or national minimum wage?
• Leave accrual calculations — Are annual leave, personal leave, and long service leave accruing correctly for full-time, part-time, and casual employees?
• Leave loading — Is the 17.5% loading applied where required, and is the “greater of” test applied for shift workers?

For a detailed walkthrough of annual leave calculations, see our annual leave entitlements guide for Australian employers.

2. Review Award Classifications

Misclassification is one of the most common sources of underpayment. Ensure that each employee’s classification under their applicable Modern Award is correct and that their duties align with the classification level. If you are unsure, the Fair Work Ombudsman’s Pay and Conditions Tool can help.

3. Document Your Compliance

Maintain clear records that demonstrate your compliance efforts. This includes:

• Records of pay rate reviews and award classification assessments
• Documentation of leave accrual calculations and methodology
• Evidence of payroll system testing and validation
• Minutes from meetings where compliance was discussed and decisions made

Good documentation is your best defence if the FWO comes knocking. It demonstrates that you took your obligations seriously and that any errors were not intentional.

4. Fix Errors Promptly

If you discover an underpayment, fix it immediately. Calculate the full amount owed (including any applicable interest or loading), repay affected employees, and document the process. The sooner you act, the stronger your position if the matter is later investigated.

For leave loading calculations specifically, our leave loading calculation guide provides worked examples for common scenarios.

5. Consider Voluntary Disclosure

If the underpayment is significant or affects multiple employees, consider voluntary disclosure to the Fair Work Ombudsman before a complaint is made. A proactive approach, combined with full repayment and system improvements, puts you in the best possible position.

Key Takeaways

• Intentional underpayment of wages and entitlements has been a criminal offence in Australia since 1 January 2025
• Penalties include fines of up to $8.25 million per contravention for companies and up to 10 years’ imprisonment for individuals
• The key threshold is “intentional” — honest mistakes are not criminal, but civil penalties have increased substantially
• Leave-related underpayments (incorrect accrual, unpaid loading, miscalculated termination payouts) are covered by the criminal provisions
• Self-reporting through a Fair Work Ombudsman cooperation agreement can prevent criminal prosecution but not civil penalties
• Audit your payroll and leave systems now, document your compliance, and fix any errors you find promptly

Frequently Asked Questions

Can an honest payroll mistake lead to criminal charges?

No. The criminal offence requires intention. An honest administrative error, a genuine misunderstanding of an award provision, or a payroll system bug would not meet the criminal threshold. However, increased civil penalties still apply to all underpayments.

Does this apply to small businesses?

Yes. The provisions apply to all employers covered by the national workplace relations system. Small businesses (fewer than 15 employees) face lower maximum penalties ($825,000 per contravention for the business entity), but the criminal liability still applies to individuals within those businesses.

What if I discover an underpayment from before January 2025?

Underpayments that occurred before 1 January 2025 are not subject to the criminal provisions — they are dealt with under the civil penalty regime that applied at the time. However, any continuing underpayment that spans across the 1 January 2025 date could attract criminal liability for the post-January 2025 period.

Does self-reporting protect me from all penalties?

Self-reporting through a cooperation agreement can protect you from criminal prosecution. It does not protect you from civil penalties. The Fair Work Ombudsman can still take civil enforcement action, including court proceedings, for the underpayments you disclose.

How does this affect leave management specifically?

Leave entitlements — annual leave, personal leave, leave loading, long service leave, and termination payouts — are all “amounts owed” under the Fair Work Act. Systematic and intentional underpayment of these entitlements falls within the criminal provisions. This is why accurate leave tracking and calculation is now more important than ever.