Lawyers-au.com 
On 1 January 2025, a law came into force that permanently changed the stakes of payroll management in Australia. For the first time in the country’s history, deliberately underpaying workers became a federal criminal offence — carrying up to 10 years in prison for individuals and fines of up to $7,825,000 for companies. This isn’t just a compliance headache anymore. Under section 327A of the Fair Work Act 2009 (Cth), an employer who intentionally fails to pay wages or entitlements they legally owe can now be charged, prosecuted, and jailed. If you suspect you’ve been underpaid — or if you run a business and aren’t certain your pay practices are fully lawful — read carefully. The consequences of getting this wrong have never been greater.
1 Jan 2025
Law in force
s 327A
Fair Work Act 2009
10 years
Maximum prison term
$7.825M
Maximum corporate fine
📋 Laws and Official Sources
- Fair Work Act 2009 (Cth) — section 327A (wage theft offence)
- Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024
- Fair Work Ombudsman — Wage theft information
- FWO — Small Business Wage Compliance Code
All legislative references were current as at August 2026. Laws are subject to amendment — verify with the Federal Register of Legislation.
What Is Wage Theft Under the New Law?
The term “wage theft” had been used colloquially for years before Parliament gave it legal teeth. Under the new provisions inserted into the Fair Work Act 2009 by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024, wage theft is defined through the criminal offence itself rather than a separate statutory definition.
Section 327A creates the offence. In plain terms: a person commits wage theft when they intentionally engage in conduct that results in a failure to pay an amount that is owed to an employee under the Fair Work Act, a modern award, or an enterprise agreement. The key ingredients are conduct (an act or omission), intention (deliberate choice), and underpayment (the employee receives less than legally required).
Notice what is not required: there’s no need to prove the employer pocketed the money personally, or that any particular sum was stolen in a conventional sense. A deliberate decision to misclassify employees as independent contractors to avoid paying award rates, or knowingly applying the wrong pay rate, is enough. The offence targets the choice — not the destination of the funds.
The new law operates on two tracks: a criminal track for intentional underpayment (requires proof beyond reasonable doubt) and a civil track for any underpayment, intentional or not (balance of probabilities). Most employers who make mistakes face the civil track. The criminal track targets deliberate, knowing non-compliance.
The Full Criminal Penalties from 1 January 2025
The penalties under section 327A are severe by any standard. They differentiate between individual perpetrators (such as a business owner, director, or manager who made the decision to underpay) and the corporate body itself.
| Who Is Sentenced | Maximum Prison | Maximum Fine | Alternative Fine |
|---|---|---|---|
| Individual (owner, director, manager) | 10 years | $1,565,000 (1,000 penalty units) | 3× the underpayment amount, if calculable |
| Body corporate (company, trust, etc.) | N/A (companies cannot be imprisoned) | $7,825,000 (5,000 penalty units) | 3× the underpayment amount, if calculable |
The penalty unit values above are as at January 2025 ($1.565 per unit for individuals using the Commonwealth penalty unit rate of $313 per unit × 5 scaling). Courts may apply whichever calculation — the flat unit fine or the threefold underpayment amount — produces the larger penalty. In cases of large, systematic underpayments, the 3× multiplier may far exceed the unit-based ceiling.
Under the law of accessorial liability in the Fair Work Act, individual managers and directors who are involved in a company’s wage theft can be personally prosecuted alongside the company. “Involved in” includes aiding, abetting, counselling, procuring, or being knowingly concerned in the commission of the offence. A conviction produces a criminal record — with lasting consequences for employment, professional licences, and travel.
What Counts as “Intentional”?
This is the question that will dominate courtrooms. The Explanatory Memorandum to the Closing Loopholes legislation clarifies that “intentional” means the person deliberately chose to engage in the relevant conduct knowing that it would, or would be likely to, result in underpayment. The prosecution must prove this to the standard of beyond reasonable doubt — the highest standard in Australian law.
What this means in practice:
- A payroll software error that caused incorrect pay rates to be applied — not intentional, civil penalties only.
- An employer who receives a Fair Work Ombudsman compliance notice, acknowledges they must fix the problem, then continues paying the wrong rate — potentially intentional.
- A business owner who is advised by their accountant that an employee is entitled to casual loading, but instructs payroll to omit it anyway — strong indication of intention.
- Misclassifying an employee as an independent contractor to avoid award obligations, when the person’s work clearly falls within the employment relationship — intention likely established.
Courts will look at what the employer knew, what they were told, and what steps (if any) they took to investigate or rectify the issue. An employer who genuinely believes their pay structure is correct — even if they are wrong — is unlikely to face criminal prosecution. The offence requires a deliberate choice to pay less, not ignorance.
What Employers Can Be Criminally Liable For
The wage theft offence applies whenever an employer intentionally underpays any amount payable under:
- The Fair Work Act 2009 itself (including the National Employment Standards — NES)
- A modern award
- An enterprise agreement
This covers a broader range of entitlements than just hourly rates. Common sources of wage theft claims include:
| Entitlement Type | Common Examples of Deliberate Underpayment |
|---|---|
| Minimum hourly wages | Paying below the applicable award rate; applying the wrong classification level |
| Penalty rates | Not paying Saturday, Sunday, or public holiday loadings under an applicable award |
| Overtime | Averaging hours to avoid overtime obligations; “time off in lieu” without agreement |
| Leave entitlements | Not paying annual leave loading; cashing out leave without proper agreement |
| Superannuation | Not paying Superannuation Guarantee contributions — note: the SG is covered separately by ATO provisions |
| Termination payments | Deliberately failing to pay notice period or redundancy entitlements on termination |
Think You’ve Been Underpaid? Don’t Wait.
Wage theft complaints are now investigated as potential criminal matters. A solicitor can assess your situation, calculate what you’re owed, and advise on the fastest path to recovery — often without going to court.
The Safe Haven: Voluntary Disclosure to the FWO
The legislation contains an important carve-out for employers who self-disclose. Under the Fair Work Act, an employer who voluntarily discloses conduct that may constitute the criminal offence to the Fair Work Ombudsman, and enters into a written cooperation agreement with the FWO, is protected from criminal prosecution for the conduct described in that agreement.
This safe haven is significant. It means that an employer who realises — perhaps after an internal audit or legal advice — that their payroll practices may cross the line into intentional underpayment has a genuine incentive to come forward. The protection, however, has limits:
- The FWO can still pursue civil penalties despite the cooperation agreement.
- The protection only covers the specific conduct voluntarily disclosed — it does not grant blanket immunity for other underpayments.
- The employer must genuinely cooperate, not merely disclose to obtain protection and then obstruct.
- The agreement must be in writing and must be entered into before any criminal referral is made.
If your business has recently identified a systemic payroll error and you are unsure whether it could be viewed as intentional, seek legal advice before contacting the FWO. The manner and timing of disclosure, and the content of the cooperation agreement, can significantly affect your exposure. A solicitor experienced in employment law can guide you through the disclosure process safely.
Civil Penalties Still Apply — Even Without Criminal Intent
Here is the aspect of the new laws that many employers overlook: the criminal regime does not replace the existing civil penalty framework. It sits alongside it. Civil underpayment claims require no proof of intention — the standard is the civil standard of balance of probabilities — and the Fair Work Ombudsman, affected workers, and unions can all initiate civil proceedings.
Civil penalties for underpayment increased significantly on 1 January 2025. For non-small business employers:
| Contravention Type | Max Penalty per Contravention (Company) | Max Penalty per Contravention (Individual) |
|---|---|---|
| Standard underpayment (civil) | $469,500 | $93,900 |
| Serious contravention (knowing or reckless) | $4,695,000 | $939,000 |
A “serious contravention” now applies when the breach is “knowing or reckless” — a lower threshold than criminal “intention.” This means an employer who is careless about whether they’re underpaying (taking risks they know exist) can face the elevated civil penalty even without criminal prosecution.
The Small Business Wage Compliance Code
Small businesses — those with fewer than 15 employees — face a modified regime. The Minister for Employment and Workplace Relations declared the Voluntary Small Business Wage Compliance Code on 16 December 2024, which came into operation alongside the wage theft provisions on 1 January 2025.
Under this Code, where a small business can demonstrate that it has complied with the Code in addressing any wage underpayment, the Fair Work Ombudsman must not refer the matter for criminal prosecution. Compliance with the Code generally requires:
- Cooperating with FWO investigations in good faith.
- Repaying the full amount of any underpayment, including any interest as required.
- Implementing remediation steps to prevent recurrence.
- Not engaging in patterns of deliberate evasion of the Code’s requirements.
This does not mean small businesses are immune. Civil penalties still apply, and the Code’s protection falls away if the FWO determines that compliance was not genuine or the underpayment was part of a deliberate ongoing scheme. Small business owners should not mistake the Code for a “get out of jail free” arrangement — it is a pathway for those who genuinely make mistakes and address them promptly.
What Workers Should Do If They’re Being Underpaid
If you believe your employer is not paying you what you’re legally entitled to, act systematically:
Fair Work Act underpayment claims are generally subject to a six-year limitation period. Don’t assume you’ve left it too long — but equally, don’t delay. Evidence becomes harder to gather as time passes, and some entitlements (such as those under individual enterprise agreements that have since been replaced) may be more difficult to establish after several years.
The Scale of the Problem: Why This Law Was Needed
The criminal wage theft law did not emerge from nowhere. The Fair Work Ombudsman recovered more than $1.5 billion in underpayments for workers in the three years prior to the law’s passage. The Super Members Council estimated that unpaid superannuation alone cost workers approximately $5.1 billion in the 2021–22 financial year.
High-profile cases exposed systemic underpayments at some of Australia’s most recognisable brands: the Commonwealth Bank, the ABC, McDonald’s, 7-Eleven, and Woolworths were among employers who underpaid staff — often on a large scale over many years. The common feature was that the consequences were civil: back-payments and fines, but no criminal accountability. Critics argued this created a “business case” for underpayment — if caught, pay back what was owed, plus a fine; the financial gain from years of underpaying often exceeded the penalty.
The 2025 criminal regime changes that calculus entirely. The prospect of prison and a criminal record for individual managers and directors — people who have professional reputations to protect — creates a fundamentally different risk landscape. That is precisely the intended effect.
Frequently Asked Questions
When did wage theft become a criminal offence in Australia?
Wage theft became a federal criminal offence on 1 January 2025, when Part 3-5B (sections 327A–327F) of the Fair Work Act 2009 came into force, introduced by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024. Before this date, underpaying employees was treated as a civil matter — employers who were caught typically faced fines and back-payment orders but no criminal consequences.
Can a company director go to prison for wage theft?
Yes. Under the Fair Work Act’s accessorial liability provisions, any individual — including a company director, senior manager, or HR officer — who is knowingly involved in the company’s intentional underpayment of wages can be personally prosecuted. The maximum sentence for an individual is 10 years’ imprisonment, plus a fine of up to $1,565,000 (or three times the underpayment amount if larger). A company itself cannot be imprisoned but can be fined up to $7,825,000.
Is accidental underpayment also a criminal offence?
No. The criminal offence requires intentional conduct — a deliberate choice that results in underpayment. Accidental underpayments (payroll errors, incorrect award interpretation made in good faith) remain a civil matter. However, civil penalties can still be substantial: up to $469,500 per contravention for a company, and up to $4,695,000 for a “serious contravention” (knowing or reckless conduct).
What is the “safe haven” for employers who self-report?
An employer who voluntarily discloses conduct that may constitute the criminal offence to the Fair Work Ombudsman, and enters into a written cooperation agreement, is protected from criminal prosecution for the disclosed conduct. However, civil enforcement can still proceed, and the protection only applies to what is specifically disclosed. Employers should obtain legal advice before disclosing, to ensure the cooperation agreement is structured effectively.
How long do I have to make a wage theft complaint?
Underpayment claims under the Fair Work Act are generally subject to a six-year limitation period from when the entitlement was due. This means you can potentially recover up to six years of underpaid wages. For FWO complaints, it is best to act promptly, as evidence (particularly timesheets and rosters) may not be retained by employers beyond their legal record-keeping obligations.
Do small businesses face the same criminal penalties?
The criminal offence applies to all employers, including small businesses. However, where a small business complies with the Voluntary Small Business Wage Compliance Code (declared 16 December 2024), the Fair Work Ombudsman is required to not refer the matter for criminal prosecution. Civil penalties still apply. Small businesses that genuinely rectify underpayments in accordance with the Code have a meaningful protection from criminal referral.
Can the Fair Work Ombudsman prosecute employers directly?
No. The FWO refers matters for criminal prosecution to the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP). The FWO itself manages civil enforcement — compliance notices, infringement notices, and civil penalty proceedings in the Federal Circuit Court. The CDPP decides whether to bring a criminal prosecution based on the FWO’s referral and the evidence available.
My employer found out I complained to the FWO and treated me differently. Is that legal?
No. The Fair Work Act provides strong protections against adverse action. Under the general protections provisions (Part 3-1 of the Act), an employer cannot take adverse action against an employee because they have exercised a workplace right — which includes making a complaint to the FWO or participating in an FWO investigation. Adverse action includes dismissal, demotion, altering duties, and subjecting the employee to disadvantage. If you believe you have been subject to adverse action for complaining about wages, seek legal advice promptly, as the time limit for general protections claims is only 21 days from the adverse action.
The Bottom Line
The 2025 wage theft laws did not create new obligations for employers — those obligations existed long before. What changed is the consequence of ignoring them deliberately. For workers, the change means that a complaint to the Fair Work Ombudsman now carries the possibility of criminal investigation, not just a back-payment order. For employers, it means that payroll is no longer an administrative function that can be managed leniently — it is a legal obligation with criminal enforcement behind it.
The practical message is the same for both sides: know what’s owed and pay it. If you’re an employee who suspects underpayment, gather your records and get advice. If you’re an employer who isn’t certain your payroll is fully compliant, audit it before the FWO does.
Get Employment Law Advice Today
Whether you’re an employee seeking to recover unpaid wages or an employer managing compliance risk, an experienced employment solicitor can protect your interests before the situation escalates.
Sources
- Fair Work Act 2009 (Cth), sections 327A–327F (wage theft offences), Part 3-1 (general protections) — Federal Register of Legislation
- Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 — Federal Register of Legislation
- Fair Work Ombudsman, “Wage theft” — fairwork.gov.au
- Fair Work Ombudsman, “Small Business Wage Compliance Code” — fairwork.gov.au
- Federal Register of Legislation — legislation.gov.au
This article is provided for general information purposes only and does not constitute legal advice. The law described was accurate as at August 2026 but is subject to amendment. Every situation is different. If you need advice about your specific circumstances, consult a qualified solicitor. For urgent workplace matters, contact the Fair Work Ombudsman on 13 13 94 or visit fairwork.gov.au.