The first day of 2025 marked a significant day for workplace reforms with the commencement of the criminal wage theft provisions under the Fair Work Act 2009 (Cth) (“FW Act”). These provisions, which criminalise intentional underpayments and impose significant penalties on employers and individuals found guilty of wage theft, reflect the growing concern around underpayments and the focus on protecting employee’s entitlements.  

The new provisions do not apply universally to all businesses, with cooperation agreements available and exemptions for small businesses.  

Coupled with the commencement of the new provisions, the Fair Work Ombudsman (“FWO”) has released a range of guidance information for businesses including a voluntary code for small businesses, details on cooperation agreements and general advice on navigating the reforms.  

The details 

The reforms create a new criminal offence of intentional underpayment. Such an underpayment may include not paying sufficient wages, penalty rates, overtime rates, allowances, amounts due under a modern award or enterprise agreement, or, nor paying entitlements such as superannuation. 

The reforms introduce: 

• Harsher penalties: fines of up to $8.25 million for corporations and $1.65 million for individuals (or three times the underpayment amount if that is greater). 

• Imprisonment: individuals found liable can face up to 10 years’ imprisonment. This is not just for business owners, but other people involved in the underpayment can be subject to prosecution including payroll managers and accountants.  

The FWO is responsible for investigating and referring cases of underpayment to the Commonwealth Director of Public Prosecutions (“CDPP”). In situations requiring further investigation, the FWO may refer the matter to the Australian Federal Police (“AFP”). 

The FWO will consider a range of factors when deciding whether to report an underpayment to the CDPP including the compliance history of the business, the seriousness of the underpayment, steps taken to remedy the underpayment and whether the employees affected by the underpayment form part of a vulnerable community.  

The FWO has confirmed that referrals for prosecution will generally be reserved for the most serious cases of intentional underpayment. 

The criminal offence of underpayment will need to be established “beyond reasonable doubt”, which is the criminal standard of proof and is higher than other offences under the FW Act. Any proceedings will need to be commenced within six years of the underpayment and the new provisions only apply to underpayments that occur after 1 January 2025. 

Intention is important 

For a business to be found guilty of the criminal offence of underpayment, it must be established that the employer intentionally engaged in conduct (by doing or not doing something) that resulted in the underpayment. The provisions do not capture genuine mistakes or oversights made by an employer. 

Small business provisions 

There are specific considerations for small businesses under the new provisions. If a business is a small business (those with less than 15 employees) then the FWO will consider whether the business has complied with the Voluntary Small Business Wage Compliance Code (“Code”). If the FWO is satisfied that a small business has complied with the Code the FWO must not refer the underpayment matter to the CDPP or AFP. This provides small businesses with some level of protection from criminal proceedings, but does not prevent the FWO initiating civil proceedings. 

Cooperation agreements 

There has never been any requirement for an employer to report an underpayment issue to the FWO. However, self-reporting has been an option, and many employers have self-reported underpayments in certain circumstances. With the introduction of criminal penalties, the FWO has introduced “cooperation agreements”. A cooperation agreement is an agreement between an employer and the FWO that outlines the conduct resulting in the underpayment and potential criminal liability. It also sets out any positive steps for the employer to take to remedy the underpayment. The FWO cannot refer an underpayment matter to the CDPP or AFP while a cooperation agreement is in force. However, the employer may still face civil penalties. 

An employer may significantly reduce the likelihood of an underpayment being reported to the CDPP or AFP by self-reporting the underpayment to the FWO, taking steps to remedy the breach and requesting a cooperation agreement. 

Guidance materials 

If you have underpaid an employee and are looking for practical guidance, you can read our article here. The FWO has also published their Guide to Cooperation Agreements here and Guide to Paying Employees Correctly and Voluntary Small Business Wage Compliance Code here.