Wage Theft Is Now a Criminal Offence in Australia: What Employers Need to Know

For years, underpaying workers in Australia was treated as a civil matter. Employers who got caught faced fines and back-pay orders, but nobody went to prison. That changed on 1 January 2025, when the federal wage theft provisions of the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 came into force.

Intentional underpayment of employees is now a criminal offence carrying penalties of up to 10 years' imprisonment for individuals and fines of up to $7.825 million for companies.

This is not a theoretical risk. The Fair Work Ombudsman (FWO) has been building its enforcement capability for years, and the new laws give it real teeth. If you employ people under any of Australia's 155 Modern Awards, you need to understand what has changed and what you should be doing about it.

What the Law Actually Says

The key provision is the new section 327A of the Fair Work Act 2009. It creates a criminal offence for an employer who intentionally engages in conduct that results in an employee being underpaid.

The three elements the prosecution must prove are:

1. The employer engaged in conduct (this could be an act or an omission, such as failing to pay penalty rates)
2. The conduct resulted in underpayment of wages, superannuation, or other entitlements
3. The employer intended the underpayment to occur

That third element is critical. Accidental or negligent underpayments are not caught by the criminal provision. The law is aimed at employers who knowingly set up systems to short-change workers, who deliberately misclassify employees to avoid paying the correct rate, or who intentionally ignore penalty rate obligations.

However, "I didn't know" is not an automatic defence. The legislation includes provisions around recklessness and wilful blindness. If an employer chooses not to check what rates apply and underpays as a result, a court could find that the employer was reckless as to whether underpayment occurred.

The Penalties Are Substantial

The criminal penalties under section 327A are:

• For individuals: Up to 10 years' imprisonment, or a fine of up to the greater of 3 times the underpayment amount or $1.565 million, or both
• For body corporates: A fine of up to the greater of 3 times the underpayment amount, $7.825 million, or 30% of the company's turnover during the breach period

These are maximum penalties. Courts will consider factors like the size of the underpayment, the number of affected employees, the duration of the conduct, and whether the employer cooperated with investigators.

For comparison, the existing civil penalties under the Fair Work Act are $18,780 per contravention for an individual and $93,900 per contravention for a body corporate (as of 1 July 2024). The criminal penalties represent a massive escalation.

What Counts as "Intentional" Underpayment

The government has been clear that the criminal offence targets deliberate wage theft, not honest mistakes. But the line between "mistake" and "intentional" is not always obvious, particularly when it comes to Modern Award compliance.

Consider a restaurant owner who employs casual workers under the Restaurant Industry Award (MA000119). The base hourly rate for a Food and Beverage Attendant Grade 1 is $23.23 per hour (effective 1 July 2025). With the 25% casual loading, that becomes $29.04 per hour for ordinary weekday hours.

But on a Saturday, casual employees must be paid at 150% of the base rate, which works out to $34.85 per hour. On a Sunday, it is 175% of the base rate: $40.65 per hour. And on a public holiday, it jumps to 250% of the base rate: $58.08 per hour (clause 31 of the Restaurant Industry Award).

If that restaurant owner pays all casual staff a flat $29 per hour regardless of when they work, that is a clear underpayment on weekends and public holidays. The question of intent becomes: did the employer know about penalty rates and choose to ignore them, or were they genuinely unaware?

A court would look at factors like:

• Whether the employer had access to information about award rates (the FWC publishes all rates online for free)
• Whether the employer had previously been notified by the FWO or an employee about the correct rates
• Whether payroll records show a pattern of deliberate manipulation
• Whether the employer used a payroll system that calculated rates correctly but then overrode the results

The Voluntary Small Business Compliance Code

Recognising that many small businesses genuinely struggle with award complexity, the government introduced the Voluntary Small Business Wage Compliance Code alongside the criminal provisions.

Here is how it works: if a small business employer (fewer than 15 employees) follows the steps in the Code when setting pay rates and conditions, they cannot be prosecuted for wage theft. The Code essentially provides a safe harbour for employers who make a genuine effort to comply.

The Code requires employers to:

1. Identify the correct award that covers each employee
2. Check the current pay rates using the FWC Pay Guide or PACT calculator
3. Keep records of the steps taken to determine pay rates
4. Review pay rates at least annually, including after each Annual Wage Review
5. Fix any errors promptly when discovered

This is not a demanding standard. It basically asks employers to do the minimum: find out what you owe and pay it. But the documentation aspect is important. If a dispute arises, having records showing you looked up rates, used a calculator, and cross-checked your payroll gives you strong evidence of good faith.

Why Award Compliance Is Harder Than It Sounds

On paper, paying the right rate sounds simple. In practice, Australia's award system is genuinely complicated. There are 155 Modern Awards, each with its own classification structure, penalty rate tables, overtime rules, and allowance triggers.

Take the Clerks - Private Sector Award (MA000002), which covers around 850,000 employees. A Level 1 clerk earns $23.23 per hour as a base rate. But the actual amount payable depends on:

• Day of the week: Saturday is 125% ($29.04), Sunday is 200% ($46.46), public holiday is 250% ($58.08)
• Time of day: Afternoon and night shift workers get 115% loading; permanent night shift gets 130%
• Overtime: First 2 hours on a weekday at 150% ($34.85), then 200% ($46.46) after that (clause 28.2(a))
• Employment type: Casual employees have different rates that already include the 25% casual loading

The Clerks Award has 1,840 individual penalty rate entries in the Fair Work Commission's pay database. The General Retail Industry Award has 1,102 entries. The Hospitality Industry Award has its own set of complexities, including different minimum engagement periods (2 hours for casuals under clause 12.4, compared to 3 hours in most other awards).

A single employee working a shift that crosses midnight on a Saturday into a Sunday could trigger multiple rate changes within one shift. Getting all of this right, every fortnight, for every employee, is a genuine challenge.

Industries Most at Risk

The FWO has historically focused its enforcement on industries with high rates of non-compliance. The industries that should be paying closest attention to the criminal wage theft provisions are:

Hospitality and restaurants: The sector with the highest number of underpayment claims. The combination of casual employees, weekend and evening work, and public holiday trading means penalty rates are a constant factor. Under the Restaurant Industry Award (MA000119), a casual worker on a public holiday earns $58.08 per hour. Under the Hospitality Award (MA000009), the public holiday casual rate is 250% of base, working out to the same amount. Many operators simply do not pay these rates.

Retail: The General Retail Industry Award (MA000004) has an evening penalty that kicks in after 6pm on weekdays, bumping permanent employees to 125% and casuals to 150% (clause 28). Many retail businesses operate well past 6pm but pay a flat rate.

Fast food: The Fast Food Industry Award (MA000003) covers around 350,000 workers, many of them juniors on casual engagements. Sunday penalty rates (150% for Level 1 employees, higher for Levels 2-3) and public holiday rates (250%) are frequently underpaid.

Cleaning: Often involves work outside standard hours, triggering penalty rates that many cleaning companies do not factor into their quotes.

Hair and beauty: Small operators with limited payroll expertise frequently misclassify employees or fail to account for Saturday penalty rates.

What You Should Do Right Now

If you are an employer, here are the practical steps to protect yourself and your workers:

1. Identify which awards apply to your business

Do not guess. Use the Fair Work Commission's award finder tool or check your employees' job duties against the classification structures in each award. Some businesses are covered by multiple awards if they employ people in different roles.

2. Check your pay rates against the current FWC rates

Every year, the Annual Wage Review adjusts Modern Award pay rates. The most recent increase took effect on 1 July 2025. If you have not updated your rates since then, you are almost certainly underpaying someone.

For the top 10 awards by coverage, here are the minimum base hourly rates (effective 1 July 2025):

These are the entry-level rates. Higher classification levels attract higher rates.

3. Audit your penalty rate payments

Run a report from your payroll system showing actual amounts paid per hour for each employee, broken down by day and time. Compare these against the penalty rate tables in the relevant award. Pay particular attention to weekends, public holidays, and overtime.

4. Fix any underpayments immediately

If you find discrepancies, back-pay the affected employees as soon as possible. The Fair Work Act provides for a "cooperation credit" in civil penalty proceedings, and voluntary disclosure of issues is a strong mitigating factor.

5. Document everything

Keep records of the steps you took to determine the correct rates, the tools you used, and when you reviewed them. This is your evidence of good faith compliance.

The Cooperation Agreement Alternative

The new legislation also introduced "Cooperation Agreements" as a pathway for employers who discover they have been underpaying staff. Under these agreements, an employer who self-reports an underpayment to the FWO and agrees to a remediation plan can potentially avoid criminal prosecution.

This is a significant incentive for employers to conduct internal audits. If you find a problem and fix it proactively, you are far better off than waiting for the FWO to come knocking.

How Technology Can Help

The complexity of the award system is the root cause of most underpayments. Modern payroll systems and award interpretation tools can automate the rate calculations that trip up so many businesses.

AirComply's pay rate calculator covers all 155 Modern Awards and automatically applies the correct penalty rates based on the day, time, and employment type. Instead of manually cross-referencing FWC pay guides, you can check rates in seconds and verify that your payroll is calculating correctly.

Try the AirComply Award Calculator to check your rates right now. It is free to use and covers every classification level across all Modern Awards.

Frequently Asked Questions

Does the criminal offence apply to all employers?

Yes, the criminal wage theft provisions apply to all employers in the federal workplace relations system, regardless of size. However, small businesses (fewer than 15 employees) can access the Voluntary Small Business Wage Compliance Code as a safe harbour against prosecution.

What is the difference between civil and criminal underpayment?

Civil underpayment is treated as a breach of the Fair Work Act and results in penalties and back-pay orders. Criminal underpayment (wage theft) requires proof of intent to underpay and can result in imprisonment and much larger fines. Both pathways can apply to the same conduct.

Can I go to jail for accidentally underpaying an employee?

No. The criminal offence requires proof of intentional conduct. Genuine mistakes, errors in award interpretation, and administrative oversights are not criminal offences, though they may still attract civil penalties and back-pay obligations.

What if I discover I have been underpaying staff?

Fix it immediately. Calculate the back-pay owed, pay it, and document the steps you took to identify and remediate the issue. Consider self-reporting to the FWO under a Cooperation Agreement. Acting promptly and in good faith is the single best thing you can do.

How far back can underpayment claims go?

Under the Fair Work Act, underpayment claims can generally go back 6 years from the date the claim is lodged. This means an employer could face back-pay obligations spanning several annual wage increases.

Does wage theft apply to sham contracting?

While sham contracting (deliberately disguising an employment relationship as an independent contractor arrangement to avoid award obligations) is dealt with under separate provisions, it can certainly be a factor in wage theft prosecutions. If an employer intentionally misclassifies employees as contractors to avoid paying award rates, penalty rates, and superannuation, that could constitute intentional underpayment.

Are there any state-level wage theft laws as well?

Victoria and Queensland had already introduced state-level wage theft criminal offences before the federal law commenced. The federal provisions are intended to create a nationally consistent approach. In practice, the federal provisions now provide the primary framework, though state offences may still apply in some circumstances.