From 1 January 2025, intentionally underpaying employees' wages or entitlements will become a criminal offence under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023. This significant shift reinforces the importance of fair pay practices and holds employers accountable for deliberate non-compliance.
For Australian businesses, the penalties are severe—fines in the millions and potential imprisonment for individuals. However, with proper preparation and compliance measures, businesses can mitigate risks and ensure they meet their obligations under the law.
This blog explores what the new laws mean, who they affect, and the steps businesses must take to remain compliant.
What's Changing from 1 January 2025?
The introduction of criminal penalties reflects a growing effort to protect workers and ensure that deliberate wage theft is met with serious consequences.
Key Highlights of the Law:
- Intentional Underpayment Defined:
- Any deliberate action to pay employees less than their legal entitlements, such as minimum wages, overtime, or allowances.
- Failing to rectify underpayments after becoming aware of the issue.
- Exclusion of Honest Mistakes:
- Employers who make genuine errors and take prompt action to correct them will not face criminal penalties.
- Penalties for Non-Compliance:
- For Individuals: Up to 10 years' imprisonment or fines of up to $1.565 million.
- For Companies: Fines of up to $7.825 million or three times the amount underpaid, whichever is greater.
Source: Fair Work Ombudsman: New Criminal Underpayment Laws
Who Do the Laws Apply To?
These laws apply to all Australian employers, regardless of size or industry. Employers managing large or complex payroll systems, particularly those employing temporary visa holders or shift workers, must pay special attention to compliance.
For small businesses, additional safeguards are provided under the Voluntary Small Business Wage Compliance Code.
The Voluntary Small Business Wage Compliance Code
The Fair Work Ombudsman (FWO) has introduced a Voluntary Small Business Wage Compliance Code (the Code) to protect small business employers from criminal prosecution.
How Small Businesses Can Comply:
- Ensure Correct Pay Rates: Check wages align with relevant awards, agreements, or the National Minimum Wage.
- Stay Updated: Monitor legislative updates that affect employee entitlements.
- Keep Accurate Employee Records: Verify correct classifications, work hours, and other critical data.
- Take Swift Action to Fix Errors: If underpayment occurs, act immediately to rectify the issue.
- Seek Trusted Advice: Consult the Fair Work Ombudsman, employer associations, or legal experts for guidance.
The Code provides practical steps many employers already take as part of best practice and compliance frameworks.
Download the Code and Guide: Voluntary Small Business Wage Compliance Code
Why Employers Must Act Now
Failure to comply with these laws carries substantial financial and legal risks:
- Reputational Damage: Employers found guilty face significant harm to their business reputation.
- Legal and Financial Penalties: The penalties are some of the harshest in Australia's employment law history.
- Operational Disruption: Investigations and enforcement actions can disrupt business operations and reduce employee morale.
Employers must view this as an opportunity to strengthen their compliance frameworks, not as a one-time fix.
Practical Steps to Ensure Compliance
- Conduct a Comprehensive Payroll Audit:
- Review your payroll systems to ensure all employees receive correct wages, allowances, and entitlements.
- Identify and rectify any historical underpayments.
- Train Your Payroll and HR Teams:
- Educate teams about the new laws and the importance of correct employee classifications and payment structures.
- Implement Strong Record-Keeping Practices:
- Ensure accurate and up-to-date records of employee roles, hours, ages, and pay rates.
- Seek Professional Support:
- Engage employment law experts to review compliance processes, advise on legislative changes, and implement best practices.
- Stay Informed:
- Subscribe to Fair Work Ombudsman updates to keep pace with evolving laws.
Conclusion
The 1 January 2025 deadline for the criminal underpayment laws underscores the importance of fair and transparent payroll practices. Employers must take a proactive approach by auditing systems, addressing risks, and leveraging expert support.
The time to act is now. By preparing early, businesses can avoid severe penalties, protect their reputation, and foster trust with their workforce.
Verified Source: Fair Work Ombudsman: New Criminal Underpayment Laws Start 1 January 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.