The Closing Loopholes Act: What Changed for Employers in 2025

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 is the most significant overhaul of Australian employment law since the Fair Work Act was introduced in 2009. It rolled out in stages from 26 August 2024, with key provisions taking effect on 1 January 2025 and 26 February 2025.

If you employ people in Australia — whether full-time, part-time, casual, or contractor — this legislation affects you. And unlike many legislative changes that are mostly procedural, this one has teeth. Intentional underpayment is now a criminal offence. Sham contracting has new consequences. Casual employment has been redefined. Labour hire workers have new rights. And the gig economy is now regulated.

This guide covers every change that matters for employers, what has actually changed in practice, and what you need to do about it.

Change 1: Wage Theft Is Now a Criminal Offence

Effective: 1 January 2025

This is the headline change. Under the new section 327A of the Fair Work Act, it is a criminal offence to intentionally underpay an employee.

What constitutes "intentional" underpayment?

The offence requires intention — not just negligence or honest mistake. The prosecution must prove that the employer:

1. Knew the employee was entitled to a particular amount, and
2. Deliberately paid less than that amount

An employer who makes a genuine calculation error is not guilty of the criminal offence. Nor is an employer who misinterpreted a complex award provision in good faith. The criminal offence targets deliberate, knowing underpayment.

However, the distinction between "intentional" and "negligent" is not always clear. An employer who has been told by their payroll provider or accountant that their rates are wrong, and who continues to pay the old rates, is on shaky ground.

Penalties

• Individuals: Up to 10 years imprisonment and/or fines of up to $1.565 million
• Bodies corporate: Fines of up to $7.825 million

These are maximum penalties. The actual penalty for a given case will depend on the severity of the underpayment, the number of affected employees, and the degree of culpability.

The Voluntary Small Business Wage Compliance Code

To protect small businesses from criminal prosecution for genuine mistakes, the government introduced the Voluntary Small Business Wage Compliance Code. If a small business employer (fewer than 15 employees) can demonstrate compliance with this Code, they are protected from criminal prosecution under the new wage theft provisions.

The Code essentially requires small businesses to:

• Make reasonable efforts to comply with workplace laws
• Act on advice from professional advisors
• Cooperate with the Fair Work Ombudsman when underpayments are identified
• Rectify underpayments promptly when discovered

Practical implication: If you are a small business, familiarise yourself with the Code and document your compliance efforts. If an underpayment is discovered, fix it immediately and cooperate with the FWO. This creates a defence against criminal prosecution.

Change 2: New Definition of Casual Employment

Effective: 26 August 2024

The Closing Loopholes Act replaced the old definition of casual employment with a new, multi-factor test. Under the amended section 15A of the Fair Work Act, a person is a casual employee if:

1. The employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work according to an agreed pattern of work, and
2. The person is entitled to a casual loading or a specific rate of pay for casual employees under the terms of the employment

What "firm advance commitment" means

The new definition lists factors to consider when assessing whether a firm advance commitment exists:

• Whether the employer can choose to offer (or not offer) work and whether the employee can choose to accept or reject work
• Whether it is reasonably likely that continuing work will be available on an ongoing basis
• Whether the employee will work only as required or whether the employment involves a pattern of regular, systematic work
• Whether the employment is described as casual in the employment contract

The critical shift is that the practical reality of the employment relationship now matters, not just the contractual label. However, the legislation also provides that if the contract states the employment is casual, that characterisation has significant weight — more so than under the old common law approach established in WorkPac v Rossato.

What employers need to do

1. Review casual employment contracts: Ensure your casual contracts clearly state that the employment is casual, that there is no firm advance commitment to ongoing work, and that the employee can accept or refuse shifts.

2. Audit working patterns: If a casual employee has been working the same hours, the same days, every week for months, consider whether the employment genuinely lacks a "firm advance commitment." If it does not, the employee may not be a true casual.

3. Be prepared for conversion requests: Casual employees can now give written notification to convert to permanent employment (see below).

Change 3: Employee-Initiated Casual Conversion

Effective: 26 February 2025

The old casual conversion system required employers to assess and offer conversion after 12 months. The Closing Loopholes Act scrapped this and replaced it with employee-initiated conversion under new sections 66A to 66M of the Fair Work Act.

How it works

1. A casual employee who has been employed for at least 6 months (or 12 months for small business employers) and who believes they no longer meet the definition of a casual employee can give their employer a written notification that they are choosing to convert.

2. The employer has 21 days to respond.

3. The employer can only refuse on specified grounds:

   • The employee still meets the definition of a casual employee
   • There are fair and reasonable operational grounds for not accepting the conversion (such as a known significant change to the employee's hours or the nature of the work)

4. If the employer accepts (or does not respond within 21 days), the employee converts to permanent employment from the date specified in the notification.

5. If the employer refuses, the employee can dispute the refusal through the Fair Work Commission.

What changes on conversion

• The 25% casual loading ceases
• The employee begins accruing annual leave, personal leave, and other permanent entitlements
• The employee's prior casual service counts towards service-based entitlements like notice of termination and redundancy pay
• The employee retains any benefits they had as a casual that are not inconsistent with permanent employment

The loading offset

If a converted employee later claims back-payment for leave entitlements during the casual period, the employer can offset the casual loading previously paid against any such claim (section 545A). This prevents employees from receiving both the casual loading and the leave entitlements it was designed to replace.

Change 4: Same Job, Same Pay (Labour Hire)

Effective: 1 November 2024

The "same job, same pay" provisions under new Part 2-7A of the Fair Work Act allow the FWC to make "regulated labour hire arrangement orders." These orders require a labour hire employer to pay their employees at least the same rates as directly employed workers at the host employer's workplace when those workers are covered by an enterprise agreement.

Who is affected

This primarily affects large businesses that use labour hire to fill roles that are also performed by directly employed workers covered by an enterprise agreement. It does not affect:

• Small businesses (fewer than 15 employees) using the host employer's enterprise agreement
• Genuine contractors (the provisions target employment relationships, not contractor arrangements)
• Situations where the labour hire workers are performing genuinely different work

Practical implications

If you are a labour hire provider, your costs may increase significantly if your workers are performing the same work as enterprise agreement-covered employees at host sites. If you are a host employer using labour hire, your providers may increase their charges to cover the higher wages, reducing the cost advantage of using labour hire.

Change 5: Gig Economy Worker Protections

Effective: 26 August 2024 (framework provisions), with further orders expected throughout 2025

The Closing Loopholes Act created a new category of worker: "employee-like" workers. This targets gig economy platforms (ride-share, food delivery, and similar platforms) and gives the FWC jurisdiction to set minimum conditions for these workers.

The FWC can now:

• Set minimum pay rates for employee-like workers
• Set minimum standards for consultation, representation, and dispute resolution
• Make deactivation dispute orders (preventing platforms from arbitrarily deactivating workers)

This is a new and evolving area of law. The FWC has begun consulting on minimum standards for specific sectors, starting with road transport and the gig economy. Specific orders are expected to be made throughout 2025 and 2026.

Who is affected

Primarily digital platform operators (ride-share, food delivery, task-based platforms). Traditional businesses that engage independent contractors are less likely to be affected, unless the contractor relationship has the characteristics of employee-like work.

Change 6: Sham Contracting — Strengthened Protections

Effective: 26 August 2024

The existing sham contracting provisions in the Fair Work Act have been strengthened. Under the amended section 357, an employer must not misrepresent an employment relationship as an independent contractor arrangement.

The key change: the old defence of "reasonable belief" that the relationship was a genuine contractor arrangement has been replaced with a tighter test. The employer must now demonstrate that they did not recklessly misrepresent the relationship. This lowers the bar for prosecution and makes it harder for employers to claim ignorance.

Risk areas for employers

• Hospitality: Using ABN contractors for regular kitchen or service shifts
• Construction: Using sole-trader subcontractors who work exclusively for one builder
• Transport: Using owner-drivers who are economically dependent on one company
• Cleaning: Using individual cleaners as contractors when they work set hours at set locations

If the worker looks like an employee (set hours, employer-provided tools, integration into the business, economic dependence on one entity), calling them a contractor does not make them one.

Change 7: Right to Disconnect

Effective: 26 August 2024 (large businesses), 26 August 2025 (small businesses)

The new "right to disconnect" provisions (section 333M of the Fair Work Act) give employees the right to refuse to monitor, read, or respond to communications from their employer outside of working hours, unless the refusal is unreasonable.

When a refusal is reasonable

Factors include:

• The reason for the contact
• How the contact is made and how disruptive it is
• The extent to which the employee is compensated for being available
• The nature of the employee's role and level of responsibility
• The employee's personal circumstances, including family or caring responsibilities

When a refusal may be unreasonable

• The employee is on-call and being compensated for their availability
• The communication relates to a genuine emergency
• The employee is a senior manager with an expectation of availability as part of their role

Practical implications

For most hospitality, retail, and food service businesses, this provision has limited practical impact — employees generally work set shifts and are not expected to respond to emails after hours. It is more relevant for office-based, professional, and managerial roles.

However, employers should be aware of the right and avoid routinely contacting employees outside their rostered hours to discuss rosters, ask about availability, or assign tasks.

What You Need to Do Now

Immediate actions

1. Audit casual employment arrangements: Review all casual contracts and working patterns. Identify any casuals who work regular, predictable hours and consider whether they genuinely meet the new casual definition.

2. Update payroll for correct rates: With wage theft now a criminal offence, ensure your pay rates are correct. Check the FWC pay guides for your applicable awards and update your payroll system. If you find underpayments, fix them immediately and document the correction.

3. Review contractor arrangements: Assess whether any workers classified as independent contractors might be employees under the strengthened sham contracting provisions. Look for economic dependence, set hours, employer-provided tools, and integration into the business.

4. Prepare for casual conversion requests: Have a process ready for handling casual conversion notifications. Know the grounds on which you can refuse and document your reasoning.

5. Update employment contracts: Ensure all employment contracts (especially casual and contractor agreements) are updated to reflect the new legislative requirements.

Ongoing compliance

6. Document everything: The Voluntary Small Business Wage Compliance Code rewards businesses that can demonstrate reasonable compliance efforts. Keep records of award checks, payroll audits, and professional advice received.

7. Train managers: Front-line managers need to understand the right to disconnect, the casual conversion process, and the sham contracting risks. A manager who routinely calls casual workers to come in at short notice and penalises them for refusing is creating legal risk.

8. Monitor FWC orders: The same job same pay and gig economy provisions will generate new FWC orders over the coming years. If you use labour hire or engage gig workers, monitor these developments.

Frequently Asked Questions

Does the wage theft offence apply to all underpayments?

No. The criminal offence only applies to intentional underpayments. Genuine mistakes, miscalculations, and good-faith misinterpretations of complex award provisions are not criminal offences. However, they are still civil contraventions and can attract penalties, back-payment orders, and adverse publicity.

Can I still hire casual employees?

Yes. Casual employment is still lawful and is appropriate for genuinely irregular, intermittent work with no firm advance commitment. The Closing Loopholes Act did not abolish casual employment — it refined the definition and strengthened conversion rights.

What happens if a casual converts to part-time?

The casual loading ceases and permanent entitlements (annual leave, personal leave, etc.) begin accruing from the conversion date. Prior casual service counts for service-based calculations. The employee's hours are based on the pattern of hours worked in the 6 weeks (or other representative period) before conversion.

Is the right to disconnect enforceable?

Yes. An employee can raise a dispute with the FWC if they believe their right to disconnect is not being respected. The FWC can make orders, including requiring the employer to stop contacting the employee outside hours or requiring the employee to respond (if the refusal was unreasonable). Contravening an FWC order can attract civil penalties.

Do these changes affect enterprise agreements?

The wage theft provisions apply regardless of whether the employee is on an award or an enterprise agreement. The casual conversion and right to disconnect provisions also apply broadly. The same job same pay provisions are specifically targeted at labour hire arrangements involving enterprise agreements.

How does the Small Business Wage Compliance Code protect me?

If you are a small business (fewer than 15 employees) and you comply with the Code, you are protected from criminal prosecution for wage theft. You may still face civil penalties, back-payment orders, and Fair Work Ombudsman enforcement action, but you cannot be criminally prosecuted. The Code requires you to make reasonable efforts to comply and to rectify underpayments promptly.

Check your award rates are correct with the AirComply Calculator — with wage theft now a criminal offence, verifying your pay rates against the latest FWC data has never been more important.