Criminalising Wage Underpayments: What Employers Need to Know

From 1 January 2025, the intentional underpayment of wages by employers will be a criminal offence under Australian law. This legislative change places significant responsibility on employers to ensure compliance with wage and superannuation obligations as required under the Fair Work Act or other industrial instruments, such as Awards or Enterprise Agreements.

When Does the Offence Apply?

Employers commit an offence if they:

• Fail to pay employees the amounts they are legally entitled to by the due date.
• Engage in intentional conduct that leads to this underpayment.

These laws do not apply to:

• Unintentional underpayments.
• Mistaken payments of incorrect amounts.

Penalties for Intentional Underpayment

For Companies:

• If underpayment can be determined: The greater of 3 times the underpayment amount or $7.825 million.
• If underpayment cannot be determined: $7.825 million.

For Individuals:

• Maximum penalty: 10 years in prison.
• If underpayment can be determined: The greater of 3 times the underpayment amount or $1.565 million.
• If underpayment cannot be determined: $1.565 million.

For A Small Business:

A Voluntary Small Business Wage Compliance Code is being developed to assist small businesses. Businesses adhering to this code will not face criminal prosecution for underpayment. Further details will be provided once the code is finalised.

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How can Employers prepare for the changes?

Employers need to identify all relevant industrial laws and instruments that apply to their workplace, especially if they have a diverse workforce with various roles.

Ensuring employees are correctly classified or graded under applicable awards or Enterprise Agreements is crucial, as misclassification can lead to underpayments.

It is recommended that employers review any remuneration set-off amounts, annualised salary arrangements and Individual Flexibility Arrangements (IFAs) to ensure employees remain better off than the Award or Enterprise Agreement.

Accurate record-keeping, particularly for time and attendance, remains important for employees who are paid above Award and are subject to set off clause. This will assist employers to avoid underpayments where employees become worse off, or to demonstrate compliance if concerns are raised by an employee or the Fair Work Ombudsman.

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What should Employers do if they discover an underpayment?

Underpayments can unintentionally occur for reasons such as a payroll error. The new criminalisation of underpayment is centred around whether there is an intention to underpay employees. It does not apply to an honest mistake or if there are miscalculations.

Fixing the underpayment quickly and getting it right in future is important. 

If am employer discovers an underpayment, they should:

• Identify the source/ reason for the underpayment
• Work out how long the employee was underpaid
• Work out how much the employee was paid and what they were entitled to be paid
• Calculate how much the employee has been underpaid
• Discuss with the employee and confirm back payment arrangements
• Address the issue that led to the underpayment to prevent it from occurring in future

If the underpayment is significant and/ or relates to an error in classification or interpretation of an industrial instrument, we recommend you seek guidance from HumanX Employee Relations before taking any steps.

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HumanX Tip - Keep up-to-date with future wage increases!

Employers working with Award or Enterprise Agreements should set reminders for when employees will likely need a pay increase, such as a junior employee’s birthday, certification or qualification achievements or yearly apprentice progression. This will help prevent future underpayments.

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