Underpaying Employees Is Now A Criminal Offence: A Wake-Up Call for Business Owners

Starting 1 January 2025, intentionally short-changing your employees on wages or entitlements will no longer be treated as a mere civil dispute, underpaying employees is now a criminal offence.

In other words, if you deliberately underpay staff, you could face hefty fines or even jail time.

Don't be tempted to think that it can’t happen to your small or medium business.

The Fair Work Ombudsman has the power to investigate suspected cases and refer them for prosecution.

In practice, companies can be fined up to $8.25 million and individuals jailed for up to 10 years, and courts can impose fines or prison, or both.

Why it Matters: Civil vs Criminal Liability 

Until early 2025, underpaying staff typically meant civil penalties, compliance notices and back-pay orders. Now, intentional wage shortfalls are on the criminal radar.

This is a major shift: authorities will treat deliberate underpayment as akin to theft. Every type of entitlement is covered:

• base pay,

• overtime,

• penalty rates,

• superannuation,

• leave,

• even allowances like the casual loading.

  In other words, failing to pay overtime or skimping on the 25% casual loading could be seen as wage theft. And if an auditor spots a pattern of intentional short-changing, you’ll need a strong defence.

How to Protect Your Business from Underpaying Employees

Preparation is key. Here are practical steps every small business should take:

• Audit your payroll. Compare all pay rates and hours to the correct award or agreement. Identify and fix any underpayments or errors immediately. Double-check overtime, penalty rates and allowances, make sure nothing is accidentally skipped.

• Check classifications. Ensure each worker is correctly classified (casual vs permanent vs contractor). If a person is effectively full-time, they may need a full-time contract (with paid leave, etc.) rather than being treated as a casual.

• Use the Fair Work compliance tools. The Fair Work Ombudsman’s free Guides and checklists offer practical advice and templates. Follow these best practices: pay on time, update rates when awards change, and keep proof of all calculations.

• Keep meticulous records. Maintain accurate timesheets, pay slips and employment contracts for every staffer. Good record-keeping is your best defence in any investigation (and it’s required by law).

• Show good faith. If you do find a payroll mistake, fix it promptly and be transparent about it. Small businesses that follow the Voluntary Wage Compliance Code – showing they didn’t intend to underpay – will not be referred for criminal charges. Self-reporting and cooperation can also keep regulators off your back.

• Get expert advice. This isn’t a DIY moment. Talk to us, or contact an employment lawyer to review your pay practices. A quick compliance check or training session can save you from hefty fines.

Are You Misusing Casual Workers?

Here’s a big one. Many businesses are using casual workers the wrong way. This is one of the most common reasons for underpayment.

If someone works regular hours every week for more than six months, even if you’ve called them “casual,” they may actually qualify for 'Casual Conversion' and be entitled to things like annual leave, sick leave, and more job security.

And if you don’t give them that, even if you’ve been paying them the casual loading, you could still be found guilty of underpaying them.

These rules are tricky, and they catch out a lot of businesses that thought they were doing the right thing. Under the new law, that could be enough to make it a criminal matter.

You’re Not Expected to Be an Expert

If you’re running a business, you’ve already got a lot on your plate. Trying to keep up with all the changes to wages, work rules, and staff rights can feel impossible.

That’s where I come in.

I’m an HR consultant who works with business owners like you to make sure your people are paid properly and your business is safe. I offer an HR Compliance Audit where I take a close look at your current setup, spot any problems, and help you fix them before they become costly.

No legal jargon. No judgement, just a straight-talking review and a plan to get things sorted.

Book a free discovery call today. Let’s make managing staff the least of your worries.  

Get in Touch

Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225  

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The content provided on this website serves as a general information resource on the subjects discussed, and should not be considered tailored to specific individual circumstances or a replacement for legal counsel. While we exert significant effort to ensure the accuracy of our information, HR Consulting TAS cannot ensure that all content on this website is consistently accurate, exhaustive, or current. Recommendations by HR Consulting TAS and any information acquired from this website should not be regarded as legal advice.