Employers who intentionally underpay employee wages or entitlements can now face criminal charges with significant penalties for those who are found guilty.
Fair Work has highlighted though, that small business employers should be assured that honest efforts to pay the right wages and other entitlements for their employees can protect them from prosecution.
The new act kicked-in from 1 January 2025, with Fair Work now able to investigate suspected criminal underpayment offences and refer suitable matters for criminal prosecution. If a person is convicted of a criminal offence, a court can impose fines, prison time, or both.
Fair Work Ombudsman (FWO) Anna Booth has encouraged small businesses (fewer than 15 employees) to read the regulator’s Guide and follow the Voluntary Small Business Wage Compliance Code (the Code) to avoid worry about the criminal offence.
“Genuine mistakes will not be prosecuted under the new criminal underpayment laws that commenced on 1 January,” Booth said.
“We understand that small business employers who work diligently to do the right thing by their employees may be concerned about being impacted by the criminalisation of intentional underpayments.
“They should rest assured – the offence applies only to intentional underpayments, and compliance with the Voluntary Code means we can’t refer a small business for possible prosecution.”
“Employers are encouraged to read the Fair Work Ombudsman’s Guide, which outlines steps businesses can take to ensure they’re paying employees correctly, including practical tools, a handy checklist, examples and best practice tips, and which explains how the Code will apply.”
Both the Guide and the Voluntary Small Business Wage Compliance Code are available on the FWO’s website.
The Fair Work Act states that if the FWO is satisfied that a small business employer complied with the Code in relation to a failure to pay an applicable amount, the FWO must not refer relevant conduct to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for possible criminal prosecution.
“Intentional underpayments are unacceptable, and the Fair Work Ombudsman will investigate and refer for possible prosecution conduct caught by the new criminal underpayment offence. But there is no reason employers can’t take reasonable steps to get their compliance right,” Booth said.
The criminal underpayment offence provides for significant penalties for those who are found guilty. For a company, the maximum penalties that apply for the criminal underpayment offence are the greater of three times the amount of the underpayment (if the court can determine the underpayment) and $8.25m, or, if the court can’t determine the underpayment, up to $8.25m.
Individuals who are found guilty could face a maximum of 10 years in prison. If the court can determine the underpayment, individuals can also be penalised up to the greater of three times the amount of the underpayment and $1.65m, or, if the court can’t determine the underpayment, up to $1.65 m.
Separate to the Code, an employer of any size who self-reports conduct that could be a criminal underpayment offence can request to enter a cooperation agreement with the FWO. A guide to cooperation agreements is now on the FWO website.
“The FWO won’t refer any conduct covered by a cooperation agreement for criminal prosecution,” Booth said.
“Employers of any size remain exposed to civil penalties and reputational risks if they fail to meet workplace obligations. Employers should make use of our range of free resources to ensure hard-working employees are receiving all their legal entitlements.”
Employers and employees can visit www.fairwork.gov.au or call the Fair Work Infoline on 13 13 94 for free advice and assistance about their rights and obligations in the workplace.
Issues can be reported online anonymously, including in languages other than English. Employees can also seek information from their union, if they are a member, or from their employer.