With new wage theft laws in effect from 1 January 2025, Australian businesses must clearly understand the difference between criminal wage theft and accidental underpayment. The difference could mean facing civil fines or being taken to court for criminal prosecution.
This guide breaks it down in plain language.
What Is the Difference Between Wage Theft and Underpayment?
-
Wage theft: When an employer deliberately withholds pay or entitlements such as wages, overtime, allowances, or superannuation. Wage theft is now a crime and can lead to up to 10 years in jail for individuals and multi-million-dollar fines for companies.
-
Underpayment: When staff are paid incorrectly because of genuine mistakes — for example, payroll system errors, miscalculations, or misreading award rules. These are still breaches, but they fall under civil penalties, not criminal law.
👉 In short: mistakes must be fixed quickly, but only intentional underpayment counts as criminal wage theft.
When Does an Underpayment Become Wage Theft?
An underpayment crosses into criminal wage theft when there’s proof of intentional conduct. Signs include:
-
Repeated underpayment across multiple employees
-
Ignoring staff complaints about missing pay
-
Falsifying rosters, timesheets, or payroll records
-
Continuing to underpay even after receiving Fair Work compliance notices
For a case to be criminal, prosecutors must prove beyond reasonable doubt that the employer knowingly short-changed workers.
Why Does the Distinction Matter for Employers?
The penalties are very different:
-
Criminal wage theft: Up to 10 years prison for individuals, plus fines worth millions (or three times the underpayment amount) for corporations.
-
Civil underpayment: For larger businesses, fines can reach up to $469,500 per breach, but there’s no jail time or criminal record.
Who Is Affected by Wage Theft Laws?
The rules apply to all workers covered by the Fair Work Act, including:
-
Full-time employees
-
Part-time employees
-
Casual workers
-
Contractors
They also interact with state-specific wage theft laws in Victoria and Queensland, making compliance more complex for multi-state employers.
How Should Employers Respond If They Discover Underpayment?
If you discover underpayment, acting quickly shows good faith and helps avoid wage theft allegations:
-
Work out the full shortfall, including interest.
-
Tell employees promptly and explain what happened.
-
Repay staff in full, with a clear reconciliation record.
-
Fix any errors to stop it happening again.
-
Self-report to Fair Work where required.
For small businesses, the Small Business Wage Compliance Code gives protection from criminal prosecution if genuine errors are reported and fixed.
How Workstem Simplifies Payroll Compliance
Simplify award interpretation and payroll processing with Workstem, the all-in-one workforce management & payroll software designed for every industry. Our system supports 122+ modern awards & 34 EAs, and keeps you up-to-date with changes in wage rates, penalty rates, and overtime rules.Workstem offers:
- Automated award interpretation
- Real-time wage calculations and timesheet syncing
- Employee self-service app for rosters and payslips
- Seamless integrations with Xero, NetSuite, and more
Choose from our Standard or Advanced plan to suit your business needs, and stay Fair Work compliant with confidence.
Book a free demo with our payroll experts and experience how Workstem can streamline your payroll and workforce operations.
FAQs About Payroll Compliance
Q1: What happens with old underpayments?
A1: Past underpayments usually remain civil matters. But if an employer knowingly continues to underpay after January 2025, even on historical amounts, it could be criminal.
Q2: Who enforces wage theft laws?
A2: The Fair Work Ombudsman investigates and can refer serious cases to the Commonwealth Director of Public Prosecutions (CDPP) for criminal charges.
Q3: Why are compliance notices important?
A3: Fair Work Ombudsman issues notices for both wage theft and underpayment. Underpayment notices require repayment, while wage theft cases may skip civil processes and go straight to prosecution.
Q4: Does the Small Business Compliance Code remove all risks?
A4: No. It only protects small businesses that self-report genuine errors. It does not cover deliberate wage theft.
