Wage theft is now a crime in Australia – are you payroll compliant?

From 1 January 2025, wage theft officially became a criminal offence in Australia. This historic legal change means that employers who deliberately underpay staff could face criminal prosecution, including potential jail time.

To help businesses meet their legal obligations, the Fair Work Ombudsman (FWO) released a new Payroll Remediation Program (PRP) Guide in April 2025. This guide supports employers—especially those who have made honest mistakes—in identifying, correcting and preventing underpayments.

If you’re a business owner, HR manager, or payroll officer, understanding this guide is now critical to managing compliance risk. Here’s what you need to know.

Why the Fair Work Payroll Remediation Guide matters

With wage theft now a criminal offence, acting quickly and transparently to address underpayments is more important than ever. The FWO’s PRP Guide outlines a clear process to help employers remediate payroll issues appropriately.

Following the guide can reduce the risk of enforcement action—particularly if you demonstrate good faith, transparency, and engagement with affected employees.

What a compliant payroll remediation program involves

1. Review Your Payroll with a clear plan 

Start by organising your internal team—HR, payroll, legal, finance—and reviewing records going back at least six years. If you have gaps or opt for a shorter review period, be prepared to explain why.

Tip for small businesses: If you’re covered by the Small Business Code, the FWO will take your size and capacity into account, provided you act in good faith.

2. Use a consistent and transparent methodology 

You’ll need to clearly document:

• Which awards or enterprise agreements applied
• How key terms (e.g. overtime, allowances) were interpreted
• Role classifications across time

Note: Do not use overpayments in one pay period to offset underpayments in another. Each pay period must be assessed individually.

3. Communicate with current and former employees 

The FWO expects a clear communication plan that includes:

• What’s happening and why
• When payments will be made
• Contact details for questions

For small businesses, personal emails or calls may suffice—what matters is clarity and accessibility.

4. Repay underpayments promptly—with interest 

While interest is not legally required, the FWO considers it best practice. The goal is to place employees in the financial position they would have been in had the underpayments not occurred.

5. Locate and pay former employees

You must make reasonable efforts to contact former employees, depending on:

• Number of individuals affected
• Total amount owed
• Your business’s resources

Acceptable outreach methods include email, social media, phone and postal mail. Keep records of all contact attempts.

6. Address the root cause of underpayments

Prevent future errors by:

• Updating payroll systems
• Conducting staff training
• Performing manual checks during system transitions
• Using Fair Work tools or engaging a payroll provider if internal resources are limited

7. Maintain ongoing compliance systems

Long-term compliance requires:

• Regular audits
• Clear payroll processes
• Staying updated with award and legislative changes

While perfection is not expected, a commitment to continual improvement is.

What wage theft laws mean for small businesses

If you operate a small business, the idea of a payroll remediation program may feel daunting. But the FWO’s approach is scalable. Small businesses that act honestly, correct errors promptly, and communicate transparently are less likely to face enforcement.

Importantly, if you follow the Voluntary Small Business Wage Compliance Code, you may avoid criminal penalties entirely under a proposed “safe haven” model.

What happens if you don’t comply?

If wage underpayments are intentional, you may be charged with a criminal offence under the Fair Work Act 2009. This does not apply to honest mistakes made in good faith—but wilful misconduct is treated seriously.

Penalties for wage theft:

1. Individuals (e.g. business owners or directors):

• Up to 10 years’ imprisonment
• Up to 5,000 penalty units (currently $1,565,000)
• Or three times the underpaid amount—whichever is greater

2. Companies:

• Up to 25,000 penalty units (currently $7,825,000)
• Or three times the underpaid amount—whichever is greater

Who investigates wage theft?

The Fair Work Ombudsman investigates wage theft matters. If sufficient evidence exists and prosecution is in the public interest, cases may be referred to the:

• Commonwealth Director of Public Prosecutions (CDPP)
• Australian Federal Police (AFP)