Criminal Wage Theft Laws: What Every Employer Must Know for 2025

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 penalties reaching $7.8 million for corporations, 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" — this means the employer knew (or should have known) they were paying less than required but chose to do it anyway.

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, any systematic or deliberate underpayment now faces criminal prosecution.

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 to avoid 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: Adopt 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
❌ Corporate fines: Up to $7.8 million per offence
❌ Civil penalties: Up to $4.7 million for serious contraventions
❌ Reputational damage and loss of business licenses
❌ 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	$666,000 per breach	$7.8 million criminal fine
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.

✅ Adopt the Voluntary Small Business Wage Compliance Code immediately. This free framework provides protection against criminal prosecution for unintentional errors and is your best defence against jail time.

✅ Conduct a comprehensive payroll audit before 30 June 2025. 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.

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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.

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, adopting the Voluntary Small Business Wage Compliance Code, 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 Advice Line is available to all Australian business owners. Contact us on 1300 144 002 today for expert advice and support tailored to your business needs.

Frequently asked questions

What's the difference between criminal wage theft and a civil underpayment?

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.

Can I be personally jailed if my company underpays staff?

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.

How does the Voluntary Small Business Wage Compliance Code protect me?

The Code provides a defence against criminal prosecution for small businesses (under 15 employees) that make unintentional errors. By adopting and following the Code's requirements — including regular audits, accurate record-keeping, and self-reporting discovered underpayments — you demonstrate good faith compliance efforts. This protects you from criminal charges though civil penalties may still apply.

What should I do if I discover we've been underpaying employees?

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.

Do these criminal laws apply to contractors and casual workers?

The criminal wage theft laws apply to employees only, including casual employees. However, using sham contracting arrangements (calling employees "contractors" to avoid paying proper wages) is itself criminal conduct. If you're unsure whether someone is an employee or contractor, use the ATO's decision tool or seek professional advice — getting it wrong could be criminal.

How will Fair Work Ombudsman enforce these new criminal laws?

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.