Since 1 January 2025, intentionally underpaying staff has been a criminal offence in Australia under the Fair Work Act. Directors who deliberately underpay wages risk up to 10 years in prison, and companies face fines of up to $7.825 million.
This isn’t just a compliance issue for payroll teams. It is a direct legal risk for directors, and one of the clearest defences is accurate, automated time tracking through a system like ClickClock.
What Changed Under the New Wage Theft Laws?
The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced a new criminal offence into the Fair Work Act 2009. Section 327A makes intentional underpayment of wages or entitlements a crime, not just a civil matter.
The offence took effect on 1 January 2025. It covers wages, allowances, penalty rates and superannuation contributions required under the Fair Work Act, an award or an enterprise agreement.
Genuine mistakes are not covered. The offence applies only where an employer intentionally underpays staff, not where a payroll error happens despite reasonable systems and processes.
Underpayment isn’t the only way businesses lose money through payroll and time records. Our guide to time theft in the workplace covers the more common, everyday version of the problem.
How Severe Are the Penalties?
Criminal penalties apply only to intentional underpayment. Individuals, including directors, managers and HR personnel found complicit, face up to 10 years imprisonment and fines up to $1.565 million or three times the underpayment, whichever is greater.
Companies face fines up to $7.825 million or three times the underpayment amount, whichever is greater. These are separate from, and in addition to, back payment of the wages owed.
Civil penalties still apply for underpayments that are not intentional, including record keeping failures. These sit far lower, up to $93,900 for individuals and $469,500 for companies, or three times the underpayment.
One practical way to reduce this exposure is choosing time and attendance software built for compliance. Our guide to key features to look for in a time and attendance system explains what to check before you commit.
Does This Apply to Small Business?
Small businesses are not exempt from the new law, but they do have extra protection. The Voluntary Small Business Wage Compliance Code has applied since 1 January 2025.
Employers with fewer than 15 employees who follow the Code are protected from criminal prosecution, even if an underpayment occurs. Civil liability for the underpayment itself still applies.
Why Directors Are Personally Exposed
The new offence is not limited to the company as an entity. Directors, managers and other people involved in the decision to underpay staff can be personally prosecuted.
This means relying on payroll software or an external bookkeeper is not, by itself, a defence. Directors are expected to know whether their systems are producing accurate records.
What Records Do You Need to Keep?
Employers must keep accurate time and wage records for seven years under the Fair Work Regulations 2009. This includes hours worked, pay rates, leave balances and superannuation contributions.
Records need to be contemporaneous, accurate, complete and verifiable. A record created or edited after the fact, with no audit trail, will not hold up under scrutiny.
This is where manual timesheets and spreadsheets become a genuine liability. They are easy to alter, easy to lose and hard to verify months or years later.
How Accurate Time Tracking Reduces Your Risk
Automated time tracking removes the guesswork from payroll. Every clock in and clock out is logged at the moment it happens, creating a tamper evident record from day one.
A system like ClickClock captures start times, finish times, breaks and overtime automatically, then feeds that data straight into payroll, reducing the manual entry errors that lead to underpayment.
GPS logging on mobile clock in also gives you a verifiable record for staff working across multiple sites, which is harder to establish with paper timesheets or a spreadsheet.
Steps to Protect Your Business Now
Directors do not need to overhaul everything overnight, but a few practical steps go a long way toward reducing both criminal and civil exposure.
- Audit your current payroll and timekeeping process against the award or agreement that applies to your staff
- Replace manual timesheets with an automated time and attendance system that timestamps every entry
- Keep every wage related record for at least seven years in a system that cannot be edited without a trail
- Review pay rates and classifications regularly, since awards and enterprise agreements change over time
- Apply the Small Business Wage Compliance Code if you employ fewer than 15 people
Frequently Asked Questions
What is the new wage theft law in Australia?
Since 1 January 2025, intentionally underpaying an employee’s wages or entitlements is a criminal offence under the Fair Work Act 2009. It was introduced by the Fair Work Legislation Amendment (Closing Loopholes) Act 2023.
What are the penalties for wage theft in Australia?
Individuals face up to 10 years imprisonment and fines up to $1.565 million or three times the underpayment. Companies face fines up to $7.825 million or three times the underpayment, whichever is greater.
Can a director go to prison for underpaying staff?
Yes. Directors, managers or other people found complicit in an intentional underpayment can be personally prosecuted and face up to 10 years imprisonment, separate from any penalty against the company.
Does the wage theft law apply to small businesses?
Yes, but small businesses have extra protection. Employers with fewer than 15 employees who follow the Voluntary Small Business Wage Compliance Code are shielded from criminal prosecution, though civil liability can still apply.
How long do I need to keep wage and time records?
Employers must keep accurate wage and time records for seven years under the Fair Work Regulations 2009, covering hours worked, pay rates, leave and superannuation contributions.
Does an honest payroll mistake count as wage theft?
No. The criminal offence applies only to intentional underpayment. A genuine error made despite reasonable payroll systems and processes is not treated as a criminal act, though it may still attract civil penalties. Protecting your business starts with accurate records.
Call 1800 431 539 or visit the ASP Microcomputers to talk through a time and attendance system built for compliance.
