New laws carrying criminal penalties for deliberate wage underpayment are scheduled to come into force on 1 January 2025. 
 
These reforms, part of the Federal Government’s “Closing Loopholes” legislative package, aim to tackle wage theft more decisively, imposing severe criminal penalties on businesses that intentionally underpay their workers. Non-small businesses will need to be especially vigilant.
 
It is important that all businesses, be they small, medium or large, take steps now to ensure they are confident their wage payment practices are compliant - before the new laws come into effect on 1 January 2025.
 
DEFINING SMALL vs NON-SMALL BUSINESSES
To understand the reach of these laws, it is essential to define what constitutes a small business under the Fair Work Act (2009). A small business is generally classified as one with fewer than 15 employees.  For these businesses, the new laws are still relevant, but the enforcement framework is more lenient, recognising the administrative and resource limitations of smaller operators.
 
On the other hand, non-small businesses, with 15 or more employees, are subject to stricter compliance requirements and will face the brunt of the criminal sanctions for deliberate wage underpayment.  Larger businesses, which have greater capacity to manage compliance, will be held to higher standards and face increased scrutiny when the new laws come into effect.
 
CRIMINAL PENALTIES FOR DELIBERATE WAGE UNDERPAYMENT
At the core of the new legislation, is the criminalisation of deliberate wage underpayment.  From 1 January 2025, non-small businesses that intentionally or recklessly underpay their workers will face criminal penalties. Under these laws, deliberate wage underpayment is defined as knowingly or recklessly failing to meet wage obligations, where there is a clear understanding that employees are being underpaid.
 
For companies found guilty of deliberate wage theft, the consequences are severe. They include:

• Up to 10 years imprisonment for individuals responsible for the underpayment.
• Fines of $7.8 million for corporations ($1.56 million for individuals), or 3x the underpayment, whichever is higher

These penalties represent a significant escalation from previous civil sanctions and highlight the government’s commitment to stamping out wage theft. By framing deliberate wage underpayment as a criminal act, the law signals a clear message to businesses: wage theft will not be tolerated.
 
CIVIL PENALITIES FOR NON-DELIBERATE UNDERPAYMENT
While criminal penalties are reserved for deliberate wage theft, non-deliberate underpayment will continue to be addressed through civil mechanisms. These cases typically arise when businesses fail to meet their wage obligations due to administrative errors, misinterpretations of award conditions, or other inadvertent oversights.
 
Civil penalties can still involve substantial fines and orders for back payment, but they lack the criminal implications of imprisonment or punitive corporate fines. This distinction ensures that businesses acting in good faith, but still making mistakes can rectify their errors, without facing the same legal consequences as those engaging in intentional wage theft.
 
VICARIOUS LIABILITY
A significant aspect of the new legislation involves the concept of vicarious liability. Under the Fair Work Act (2009), large companies and franchisors can be held responsible for wage underpayments that occur within their networks, even if they are not directly involved in setting wages.
 
This principle of vicarious liability was highlighted in the first Franchisor Liability case pursued by the Fair Work Ombudsman (FWO). In this landmark case, a franchisor was held responsible for wage underpayments committed by a franchisee. The ruling established that franchisors must take active steps to prevent wage theft across their networks, including monitoring compliance and ensuring franchisees understand their wage obligations.
 
QUANTUM OF PENALTIES & INDUSTRY REPUTATIONAL RISK
The penalties for businesses found guilty of deliberate wage underpayment are steep. Along with the up to $7.8 million in fines for corporations, individual executives could face up to 10 years of imprisonment. Beyond these legal and financial consequences, companies caught underpaying workers will also face reputational damage. Public exposure of wage theft scandals can harm brand trust, erode consumer confidence, and result in long-term damage to a company’s market position.
 
For non-deliberate wage underpayments, the civil penalties remain significant, including fines, back payment orders, and potential compensation to affected employees. The Fair Work Ombudsman has made it clear that non-compliance, even when unintentional, will not be tolerated, though such cases will not attract the same criminal consequences as deliberate wage theft.
 
A NEW ERA OF WAGE ENFORMCEMENT
The new wage underpayment laws represent a seismic shift in how Australia deals with wage theft.
 
With the new laws set to commence on 1 January 2025, it is recommended that businesses review and strengthen their wage compliance frameworks now.