Criminalisation of wage theft in Australia

On 1 January 2025, Australia introduced legislation that criminalises the intentional underpayment of wages, commonly referred to as wage theft. This marks a significant shift in employment law, placing greater accountability on employers to ensure full compliance with wage obligations.

Penalties for non-compliance

The consequences for breaching these laws are severe:

• Businesses may face fines of up to $8.25 million, or three times the value of the underpayment, whichever is greater.
• Individuals (such as directors or senior managers) may be fined up to $1.65 million, or three times the underpayment, and may also face up to 10 years’ imprisonment.

What is wage theft?

Wage theft occurs when an employer intentionally engages in conduct that results in an employee not receiving their lawful entitlements on time. These entitlements are defined under the Fair Work Act, Modern Awards, and Enterprise Agreements, and include:

• base wages
• superannuation contributions
• overtime and penalty rates
• redundancy pay
• leave entitlements (e.g. annual leave, personal leave)
• allowances and leave loading.

Importantly, the offence does not extend to payments based solely on contractual terms, such as bonuses or incentive schemes.

Understanding ‘intentional conduct’

Under the Fair Work Act an employer’s 'intention' can be established in one of three ways:

1. Direct involvement: proving that the employer’s board of directors or a high managerial agent of the employer intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence.
   
   
2. Corporate culture: proving that a corporate culture existed within the employer that directed, encouraged, tolerated or led to the commission of the offence.
   
   
3. Failure to foster compliance: proving that the employer failed to create and maintain a corporate culture that required compliance with the relevant provisions.

While most businesses are unlikely to fall under the first category, many may be at risk under the second or third if they lack effective governance or tolerate non-compliance in practice.

How a business could breach the rules: key risk areas

Businesses may inadvertently breach wage compliance regulations through several common risk areas. These breaches can lead to wage theft claims, reputational damage, and legal consequences.

Contractor vs employee misclassification

In contrast to employees, contractors do not receive paid leave entitlements, overtime, redundancy pay etc and therefore misclassifying an employee as a contractor could lead to a wage-theft claim. It is essential to correctly determine employment status and document the basis for classification at the outset of each new engagement. Factors taken into account when determining employment status include the degree of control, integration and financial risk

Application of Modern Awards

Australia has over 120 Modern Awards, which supplement the National Employment Standards by providing additional entitlements such as minimum wage rates, overtime, allowances, and annual leave loading. Employers must have robust processes to, identify the correct Modern Award for each employee and apply its terms accurately.

Failure to apply the correct Award or misclassifying employees may lead to significant underpayments and wage theft allegations.

Inadequate time tracking

Overtime entitlements typically apply to work performed outside standard hours, as defined in the relevant Modern Award. Without accurate time tracking and formal overtime approval processes, businesses risk underpaying employees, which can be construed as wage theft.

Late payments

Timely payment is critical. Even if the correct amount is paid, delays can constitute wage theft. Termination payments must be made by the final day of employment or the next scheduled pay cycle. Best practice, as advised by the Fair Work Ombudsman, is to pay within seven days of termination.

Unlawful deductions

Deductions from wages are only lawful with an employee’s consent, by court order, by Fair Work Commission order or if required by law. Recovering overpaid salary should be handled with care in order to avoid a wage theft claim. 

Incorrect pay calculations

It’s essential that pay calculations are correct - there are specific rules relating to a ‘days pay’ when calculating annual leave and personal and carers leave. Also, redundancy pay and notice pay use different definitions of pay (the former is based on basic pay only whereas the latter includes allowances). Using the wrong calculation could be construed as wage theft.

In all the above scenarios, a lack of proper governance, oversight, or internal controls may be sufficient to establish ‘intent’ in a wage theft case—even if the breach was not deliberate.

Recommended actions

To mitigate the risk of wage theft claims, businesses should adopt a proactive and compliant approach to wage management:

• Classification: Ensure individuals are correctly classified as employees or contractors.
• Award Coverage: Identify and apply the correct Modern Award for each employee.
• Payment accuracy: Pay all entitlements in full and on time.
• Record keeping: Maintain detailed records of hours worked, payments made, and entitlements accrued.
• Regular audits: Conduct periodic reviews to ensure ongoing compliance.

Creating a culture of compliance and accountability is key to protecting your business from wage theft allegations. Our HR team can help you put in place the correct controls