Criminal Wage Theft Laws: What Every Employer Must Know for 2025
Since 1 January 2025, intentional underpayment is a crime with up to 10 years' jail. What counts as criminal wage theft and how to protect your business.
Updated October 2026: Penalty figures in this post have been updated to the Commonwealth penalty unit of $364, which applies to conduct on or after 1 July 2026. We have also corrected how the offence works: it requires intention (carelessness or "should have known" is not enough), sham contracting is a civil contravention rather than a crime in itself, and the Voluntary Small Business Wage Compliance Code stops the Fair Work Ombudsman referring an underpayment for prosecution but is not a defence in court. Not sure your pay rates are right? An HR compliance audit can check them.
Australia's first criminal wage theft laws have arrived
From 1 January 2025, intentionally underpaying employees is no longer just a civil matter — it's now a criminal offence that could land individuals in prison for up to 10 years.
This landmark change to Australian employment law represents the most significant shift in wage compliance enforcement in decades, transforming what was once a financial penalty into potential jail time.
For Australian small and medium businesses already navigating complex award rates and employment obligations, these new criminal provisions add another critical layer of compliance risk. With the Fair Work Ombudsman actively promoting prosecution-ready cases and fines of up to $9.1 million (or 3 times the underpayment, if higher) for companies, understanding the difference between honest mistakes and criminal conduct has never been more important for protecting your business and personal freedom.
Understanding criminal wage theft laws in plain English
Criminal wage theft occurs when an employer intentionally underpays their employees' wages or entitlements. The key word here is "intentionally" — the employer must have intentionally engaged in the conduct that resulted in the underpayment. Carelessness, honest mistakes or "should have known" are not enough for the criminal offence.
It's the deliberate nature of the underpayment that transforms it from a civil breach into a criminal offence.
These new provisions sit alongside existing civil penalties under the Fair Work Act 2009, creating a two-tier enforcement system. While unintentional errors or genuine misunderstandings about award interpretations remain civil matters, intentional underpayment can now be prosecuted as a crime.
This includes scenarios like paying cash rates below minimum wage, withholding overtime or penalty rates you know are due, or falsifying time records to reduce wages owed.
Criminal wage theft legal obligations for employers
The introduction of criminal sanctions fundamentally changes how employers must approach wage compliance. Understanding your obligations isn't just about avoiding penalties anymore — it's about avoiding prosecution.
What Constitutes Criminal Wage Theft
Criminal conduct involves intentional underpayment where the employer knows they're breaching obligations but chooses to continue anyway.
Examples include: Knowingly paying below minimum wage, deliberately withholding overtime or penalties, falsifying payroll records, instructing unpaid work, and using sham contracting arrangements to intentionally avoid paying entitlements.
The key factor is intent — prosecutors must prove you deliberately underpaid workers for criminal charges to succeed.
What Remains a Civil Matter
Civil breaches typically involve unintentional errors, misunderstandings, or system failures that result in financial penalties and back-payment orders only.
Examples include: Genuine award interpretation errors, unintentional payroll system mistakes, good faith classification misunderstandings, mathematical calculation errors, and first-time breaches quickly rectified.
These situations don't involve jail time but still require immediate correction and may incur civil penalties.
How to Protect Yourself
Protection comes from demonstrating good faith compliance efforts and maintaining transparent, documented processes.
Key protections: If you are a small business, follow the Voluntary Small Business Wage Compliance Code; conduct regular payroll audits, self-report discovered underpayments immediately, and maintain comprehensive wage records for seven years.
Document all pay decisions and seek cooperation agreements if issues arise — transparency typically prevents criminal prosecution.
Consequences of non-compliance:
❌ Criminal penalties: Up to 10 years imprisonment for individuals, and fines of up to the greater of 3 times the underpayment or $1.82 million
❌ Corporate fines: Up to the greater of 3 times the underpayment or $9.1 million per offence (conduct on or after 1 July 2026)
❌ Civil penalties: Up to $5.46 million per serious contravention for larger companies (conduct on or after 1 July 2026)
❌ Reputational damage and loss of business licences
❌ Personal liability for directors and senior managers
How criminal wage theft laws impact your business
The shift from civil to criminal enforcement creates unprecedented risks for Australian businesses. Beyond financial penalties, business owners and managers now face the possibility of criminal records and imprisonment, fundamentally changing how wage compliance must be approached.
| Impact Area | Before 1 January 2025 | From 1 January 2025 |
|---|---|---|
| Maximum Individual Penalty | Civil penalty only | 10 years imprisonment |
| Maximum Corporate Fine | Civil penalties only | Criminal fine of up to $9.1 million or 3 times the underpayment (conduct from 1 July 2026) |
| Enforcement Approach | Education first, penalties later | Criminal prosecution possible |
| Personal Liability | Limited to accessorial liability | Direct criminal liability |
| Record Keeping | Important for compliance | Critical for criminal defence |
| Business Continuity | Fines impact cash flow | Imprisonment disrupts operations |
Practical tips for managing criminal wage theft compliance
These criminal provisions target deliberate underpayment, not honest mistakes. By implementing robust compliance systems and maintaining transparent practices, you can protect both your business and personal freedom.
✅ If you have fewer than 15 employees, follow the Voluntary Small Business Wage Compliance Code. If the Fair Work Ombudsman is satisfied you complied with it, it won't refer an underpayment for criminal prosecution. Genuine mistakes aren't criminal anyway, and the Code doesn't stop civil action.
✅ Conduct a comprehensive payroll audit now (an HR compliance audit can help). Review every employee's classification, pay rates, and entitlements against current Modern Awards and document your findings.
✅ Invest in proper payroll systems with award interpretation. Modern software automatically updates award rates and calculates complex entitlements, providing an audit trail that proves your intent to comply.
✅ Document every pay decision meticulously. Keep records showing how you determined classifications, which award applies, and calculation methods — these records are your criminal defence if accusations arise.
Transparency and cooperation with authorities demonstrate good faith. If you discover past underpayments, self-report to Fair Work Ombudsman immediately and seek a cooperation agreement.
✔ Train all managers on their personal criminal liability. Anyone who instructs or allows underpayments faces prosecution, so ensure every supervisor understands they can be personally charged.
✔ Schedule quarterly compliance reviews. Set calendar reminders to check for award updates, review classifications, and audit payslips.
❌ Never hide or ignore underpayment issues. The cover-up is often worse than the crime — transparency demonstrates good faith and protects against criminal charges.
❌ Avoid cash payments to circumvent proper wages. Paying cash below award rates is clear criminal conduct requiring all payments through proper payroll.
Need advice on this?
Talk it through with an Employment Compass HR adviser before you act.
Final thoughts
The introduction of criminal penalties for wage theft marks a watershed moment in Australian employment law. While the prospect of jail time for payroll errors might seem daunting, remember that these laws target deliberate underpayment, not honest mistakes.
By implementing robust compliance systems, following the Voluntary Small Business Wage Compliance Code (if you are a small business), and maintaining transparent payroll practices, you can protect both your business and your personal freedom. The effort you invest in wage compliance today isn't just about avoiding penalties — it's about building a sustainable, ethical business that attracts and retains the best talent.
The stakes have never been higher, but the path to compliance has never been clearer.
If you need further assistance with criminal wage theft compliance or other HR matters, our 24/7 HR Advice Line is available to all Australian business owners. Call us on 1300 144 002 today for expert advice and support tailored to your business needs.
Frequently asked questions
Criminal wage theft involves intentional underpayment where the employer knew they were breaching obligations but did it anyway, resulting in potential jail time up to 10 years. Civil underpayments are typically unintentional errors or misunderstandings that result only in financial penalties and back-payment orders. The key differentiator is intent — prosecutors must prove deliberate underpayment for criminal charges.
Yes, individuals including directors, managers, HR staff, and business owners can face personal criminal prosecution and up to 10 years imprisonment for intentional wage theft. You can be charged if you personally directed, authorised, or were knowingly involved in the underpayments, even if the underpayment benefited the company rather than you personally.
If you're a small business employer (fewer than 15 employees) and the Fair Work Ombudsman is satisfied you complied with the Code in relation to an underpayment, the FWO must not refer that conduct for criminal prosecution. The Code is not a defence in court and doesn't stop civil action: you still have to fix the underpayment, and civil penalties can still apply. Unintentional errors aren't criminal in any case.
Act immediately — self-report to the Fair Work Ombudsman and seek a cooperation agreement. Calculate all underpayments with interest, notify affected employees, and arrange back-payment. Document everything and implement systems to prevent recurrence. Self-reporting and cooperation typically prevent criminal prosecution and may reduce civil penalties.
The criminal wage theft laws apply to employees only, including casual employees. Sham contracting (calling employees "contractors" to avoid paying proper wages) is a serious contravention of the Fair Work Act, with civil penalties of up to $546,000 per contravention for a company (conduct from 1 July 2026). It is relevant to the criminal offence only where it is part of an intentional underpayment. If you're unsure whether someone is an employee or contractor, use the ATO's decision tool or seek professional advice.
Fair Work Ombudsman has indicated they'll refer the most serious cases for criminal prosecution, particularly those involving vulnerable workers, repeat offenders, or large-scale systematic underpayments. They're conducting targeted compliance campaigns in high-risk industries like hospitality, retail, and aged care. Anonymous tip-offs from employees often trigger investigations.
General information only
This content is general information about Australian employment law, current at the date it was last reviewed. It does not take your circumstances into account and is not legal advice. For advice about your situation, call Employment Compass on 1300 144 002.
Last reviewed: October 2026
Need help? Talk to an HR adviser
Every workplace is different. For advice on how this applies to your business, call our 24/7 HR advice line and speak with an Employment Compass HR adviser.
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