At a glance
By Gary Anders
In 2023–24, Australia’s Fair Work Ombudsman (FWO) recovered A$473 million in unpaid employee entitlements, lifting the regulator’s tally of retrieved worker back-payments to a staggering A$1.5 billion, over the last three years.
More than half of the recoveries — A$333 million — were extracted from large corporate sector employers.
In addition to achieving major litigation wins, the FWO entered into enforceable undertakings involving back-payments from 15 large employers.
Most employee underpayments are not deliberate. In many cases, they stem from complex laws and awards, and human or payroll-system errors. But some are intentional, as evidenced by the business prosecutions and penalties listed on the Fair Work Ombudsman website.
Following changes to Australia’s Fair Work Act (2009) (Cth), which took effect in January 2025, intentionally underpaying an employee’s wages or entitlements can now be a criminal offence.
What has changed?
The FWO has the power to investigate suspected criminal underpayment offences and refer matters it considers suitable for prosecution to the Commonwealth Director of Public Prosecutions or the Australian Federal Police.
Any person convicted in court of a deliberate underpayment offence can be subject to hefty monetary fines, imprisonment for up to 10 years, or both.
For a company, if a court can determine the underpayment amount, the maximum penalty will be the greater of three times the underpayment amount up or A$8.25 million. For an individual, the maximum penalty will be the greater of three times the underpayment amount or A$1.65 million.
Changes to the Act also include an increase in the penalties courts may impose for civil remedy contraventions for businesses with 15 or more employees, such as breaches of the National Employment Standards, award and agreement obligations, pay slip and record-keeping obligations, and compliance notice requirements.
Protections for small business employers
However, there are new protections for small business employers with fewer than 15 employees to avoid criminal prosecution, including the Voluntary Small Business Wage Compliance Code (the Code) and cooperation agreements. An employer of any size who self-reports conduct that could be a criminal underpayment offence can also request to enter a cooperation agreement with the FWO.
The FWO has noted that small businesses that comply with the Code, cannot be referred for possible prosecution, if an underpayment was unintentional.
A guide by the FWO provides information related to paying employees correctly and understanding the protections of the Code. It sets out advice and tools, including a checklist, examples and best practice tips.
While the new laws exclude unintentional errors, employers classifying employees incorrectly under awards or enterprise agreements and not increasing pay rates in line with minimum wage increases, can potentially be subject to criminal prosecution.
Upskill
What deters potential offenders?
Paul O’Halloran, a workplace relations specialist and partner in the employment and safety team of law firm Dentons, questions whether making underpayment of wages a criminal offence will be effective in stamping out what he believes is a systemic issue.
“First, the Fair Work Ombudsman will have to identify contraventions, then refer it to the federal police or the Director of Public Prosecutions, who then has to, in accordance with their own prosecution guidelines, determine if the state of mind of the alleged offenders is so criminal in nature that there should be a criminal prosecution,” O’Halloran says.
“Putting the label ‘criminal offence’ on it is scary, but criminal law principles tell us that people are not deterred by the gravity of the offence. They’re deterred by the prospect of detection, and there’s nothing around these new offences that really increase the chances of detection.”
Create a culture of proactive compliance
Lynden Albiston, special counsel at law firm Lander & Rogers, says that carelessness or indifference will not be enough to support a prosecution.
“I think one of the policy objectives driving this is deterrence, and another is trying to promote a culture of proactive compliance among employers.
“I wouldn’t be surprised to see some prosecutions early, most likely for egregious intentional conduct. I expect it to be the low-hanging fruit early on that would be the sort of prosecutions [the FWO] will look to prioritise referring.”
O’Halloran says the message for clients and employers is that there is no scope for being uncertain around what wages and entitlements employees are owed.
“Having audits, getting legal advice and getting payroll advice about the application of pretty complex terms and conditions in modern awards and enterprise agreements is now a major governance issue that has to be escalated all the way to boards,” he says. “Because board members could theoretically go to prison for being reckless or involved in underpayment of wages.”
O’Halloran adds that there is also accessorial liability, where individuals within a company and even external accountants can be prosecuted and subject to civil fines for their involvement in the underpayment of wages.
Disclaimer: This article should not be considered as legal, tax or financial advice and may not reflect the views and opinions of CPA Australia. CPA Australia does not warrant or make representations as to the accuracy, completeness, suitability or fitness for purpose of this publication and disclaims all liability and responsibility for any acts or omissions made in reliance of this publication. Readers should seek their own professional advice that takes into account their own personal circumstances.
