Closing loopholes crack down on underpayments and wage theft (1 January 2025) and key employment updates for the new financial year

From 1 January 2025, wage theft has become a criminal offence and penalties for underpaying employees have never been higher. The new financial year also introduces updated key employment conditions, such as increased minimum wages. Given the increased focus on employee underpayments, now is the time to review compliance and seek advice.

Lookout! Key Employment Updates for the New Financial Year

Wage Theft Law – 1 January 2025

As of 1 January 2025, changes to the Fair Work Act 2009 (Cth) (FW Act) exposes employers to criminal liability for intentionally underpaying employees.

Under section 327A of the FW Act, an employer commits a criminal offence if it engages in intentional conduct which results in wage theft. Namely, conduct that results in the employee failing to receive the ‘required amount’ owed to them under the FW Act, modern award or enterprise agreement in full, on or before the date the amount is due.

To constitute intentional conduct, it must be established that the employer: (1) intended to engage in the conduct; and (2) intended that their conduct would result in a failure to pay the required amount to the employee. ‘Intentional conduct’ is not conduct that is ‘accidental, inadvertent or based on a genuine mistake.’ Although an ongoing underpayment due to delayed or incorrect rectification may be captured.

Maximum penalties for employers (body corporate):

• If the underpayment amount can be determined: the maximum fine is the greater of either 3 x the underpayment amount or $8.25 million; or
• If the underpayment amount cannot be determined: the maximum fine is $8.25 million.

Maximum penalties for individuals:

• Imprisonment for up to 10 years and/or a fine. If the underpayment amount can be determined: the maximum fine is the greater of either 3 x the underpayment amount or $1.65 million; or
• If the underpayment amount cannot be determined: the maximum fine is $1.65 million.

Employers who voluntarily disclose conduct that may constitute a criminal offence to the Fair Work Ombudsman (FWO) may have the opportunity to enter into a written cooperation agreement. If such an agreement is in place, the FWO will not refer the specified conduct for criminal prosecution, though it may still pursue other forms of enforcement, such as civil litigation.

Civil Penalties for Underpayments – 1 January 2025

The new criminal wage theft regime operates alongside the existing civil penalty framework for underpayments. Under the civil regime, there is no requirement to establish intention and employers can be inadvertently non-compliant. The maximum civil penalty to non-small business employers for wage underpayments effective from 1 January 2025 is set out below:

Maximum penalties for employers (body corporate):

The greater of:

• $495,000 (or $4.95 million for serious contraventions); or
• 3 x the value of the underpayment.

Maximum penalties for individuals:

• $19,800 per contravention (or $198,000 for serious contraventions).

A lower threshold for a ‘serious contravention’ now applies as long as it is a ‘knowing or reckless contravention’ of a civil remedy provision. There is no longer a requirement for the contravening conduct to be systemic.

Update on migrant worker exploitation laws

As of July 2024, dishonest employers who exploit migrant workers face significant penalties. This includes up to two years in prison and/or a fine of $118,800 for individuals or for a body corporate, up to a $594,000 fine. In addition to criminal penalties, employers may also be subject to a civil penalty of $79,200 for individuals or up to $396,000 for a body corporate. These laws apply to cases of exploitation which includes underpayment.

Employers who violate these laws may also face ‘migrant worker sanctions’ under section 245AYH(1) of the Migration Act 1958 (Cth) if a Fair Work order has been made against the employer for a contravention of a civil remedy provision involving migrant  workers. This includes the provisions relating to underpayments. An employer may be designated as a “prohibited employer” if found to have breached these laws which prevents the employer from hiring further migrant workers for up to 5 years. Additionally, the employer will be placed on the ‘Prohibited Employer Register’ published on the Australian Border Force’s website.

Case law

On 20 December 2024, the Federal Court in FWO v Blue Sky Kids Land Pty Ltd [2024] FCA 1475, imposed a significant $4.299 million penalty under the former regime on Blue Sky Kids Land Pty Ltd (BSKL), the operator of a children’s clothing store. This was in addition to orders for back payments plus superannuation and interest. In addition, two directors received penalties of $760,000 and $43,000 respectively.

The penalties imposed by the Federal Court in this case represents the third highest ever secured in court by the FWO. Employees were paid as little as $10 an hour between October 2015 and June 2018. The court stated that the $4.299 million penalty represented 49% of the theoretical maximum at the time.

Further, the FWO, Anna Booth, when referring to FWO v KLM Foods Pty Ltd [2025] FedCFamC2G 140 stated that underpayments of visa holders are treated particularly seriously. Ms Booth stated “we condemn the underpayments of migrant workers in this case. We also have zero tolerance for unlawful cashback arrangements that attempt to hide underpayments”. It is clear that the FWO is taking a strong position relating to the exploitation of migrant workers in this area.

Lavan’s comments:

With these new changes in effect and the increasing focus on employee underpayments, it is important for employers to be proactive in ensuring compliance with employees’ pay requirements. The following actions may assist employers:

• Reviewing any modern awards or enterprise agreements to identify coverage;
• Conducting regular payroll audits to ensure payroll systems are compliant;
• Maintaining proper employee records;
• Regularly reviewing annualised salary arrangements and payments including to migrant workers; and
• Implementing appropriate training for payroll and management.

At Lavan, our experienced Employment, Safety and Education team can assist in managing compliance with the complex and ever-changing nature of employment law. This team works closely with its Migration team to ensure seamless compliance in the areas of employment and migration. To learn how Lavan can support your business please contact us.

Thank you to Monica Wells, Law Graduate, for her research and assistance with this article.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.