Simon Obee is the Head of HR Advisory at Employment Hero. In this piece, he breaks down what SMEs need to know about the new wage theft legislation.
From 1 January 2025, wage theft laws became a lot tougher and the implications for small businesses could be significant. Under the Government’s Closing Loopholes legislation (covering the Fair Work Amendment (Closing Loopholes) Bill 2023 and the Fair Work Amendment (Closing Loophol es No.2) Bill 2023) the deliberate underpayment of employees is now a criminal offence and carries severe penalties, including hefty fines and prison time. However, even accidental underpayments can lead to substantial civil penalties.
For small businesses, staying compliant has never been more critical (or challenging). Here’s a straightforward breakdown of what you need to know to navigate these changes confidently.
What’s changing and what’s at stake?
The new laws aim to target employers who intentionally underpay employees. However, small businesses should note that unintentional breaches, while not criminal, could still result in civil penalties. The Fair Work Ombudsman (FWO) is now empowered to investigate cases and enforce penalties for both deliberate and accidental underpayments and small businesses found to have breached wage laws may face:
- Up to $99,000 in fines for accidental breaches.
- Tripled fines for ‘serious contraventions’ where recklessness is proven.
- For intentional wage theft, fines could reach up to $8.25 million for companies and $1.65 million for individuals, as well as carry up to 10 years in prison for those involved.
What exactly is wage theft, and how does it happen?
Wage theft includes actions such as:
- Paying below minimum wages, penalty rates, or overtime entitlements.
- Failing to pay full superannuation contributions on time.
Although wage theft is deliberate or intentional, accidental errors due to complex payroll systems or a misunderstanding of obligations can still result in financial penalties under separate provisions if not rectified promptly.
Introducing the Voluntary Small Business Wage Compliance Code
To support businesses with fewer than 15 employees, the Voluntary Small Business Wage Compliance Code offers a pathway to avoid criminal prosecution for accidental underpayments. Compliance with the code involves:
- Identifying and fixing errors: Taking prompt action to rectify underpayments, including backpaying employees and adjusting payroll systems.
- Staying informed: Subscribing to Fair Work updates and checking for changes to Modern Awards and pay rates.
- Seeking advice: Consulting reliable sources like the FWO, employer associations or professionals such as our HR Advisory Service to ensure employees are paid correctly.
- Demonstrating good faith: Cooperating with FWO investigations and showing proactive compliance efforts.
The FWO assesses compliance with the code on a case-by-case basis and will consider factors such as the employer’s efforts to address errors, the circumstances of the underpayment and steps taken to prevent future issues.
According to Fair Work, there are a range of factors that can show an employer has complied with the Code, including:
| Whether the employer has: | Example |
| Taken reasonable steps to calculate and back pay correct rates and entitlements. | This may include checking the relevant award or enterprise agreement or confirming that the National Minimum Wage Order applies. |
| Made reasonable effort to stay up to date with changes to their obligations, including workplace laws. | This may include subscribing to Fair Work email updates to stay up to date on changes to any relevant awards, such as pay rate increases. |
| Checked and relied on employee information the employer reasonably believed was accurate in relation to paying wages. | This may include relying on accurate information about the employee when checking they’ve been classified correctly based on their role and duties, or that they’re being paid correctly for their age. |
| Sought information or advice from a reliable source about paying employee entitlements correctly. | This may include seeking advice from an employer association, lawyer, the Fair Work Ombudsman, or the Fair Work Commission. |
| Provided accurate information when seeking advice | This may include seeking advice or information from a reliable source, making sure to give that source the correct information about an employee like their classification and age. |
| Taken steps to fix the underpayment. | This may include repaying an amount as soon as possible, and taking steps to prevent the issue from happening again. |
| Cooperating with any inquiry or investigation that the Fair Work Ombudsman may conduct about the underpayment. | This may include responding to our calls and emails and engaging with us throughout the inquiry or investigation as needed. |
| Other factors that might be relevant, such as what led to the underpayment or how the employer became aware of the underpayment. | For example, a payroll error being identified during a quarterly business audit. |
Source: Fair Work Ombudsman – Voluntary Small Business Wage Compliance Code
Practical steps for small businesses
It’s crucial to prioritise key compliance areas that will help safeguard against unintended breaches and align with evolving wage theft regulations.
Take the following steps to protect your business against risk:
Audit your payroll systems: Review wages, entitlements and superannuation to ensure accuracy.
Train staff: Regularly upskill payroll employees and subscribe to Fair Work newsletters for updates. Employment Hero’s HR Advisory Service also regularly sends out updates on changes to the law that affect pay compliance.
Correct errors quickly: Fix underpayments as soon as they’re identified and notify employees.
Invest in reliable payroll software: The reality is, that even just one incorrect calculation or one misclassification can snowball and lead to disastrous, albeit unintended consequences for your business. Thankfully, modern Employee Operating Systems (eOS) have been purpose-built to navigate changes like these. As a digital one-stop-shop that brings together all HR-related functions under one digital roof, an eOS will have in-built Modern Award interpretation, powerful payroll engines and access to employment experts that can help companies confidently manage their obligations.
Consult experts: Seek advice from the FWO or other trusted advisors such as Employment Hero’s HR Advisory Service to ensure compliance with the law.
The bottom line
Australia’s employment legislation is among the most complex in the world, and even small mistakes can have costly consequences. For small businesses, aligning with the Small Business Wage Compliance Code and adopting proactive measures is the best way to navigate these changes confidently.
By staying informed and compliant, small-business owners can protect their businesses while ensuring fair treatment for their employees – a win-win in the evolving world of workplace law.
