Underpayment of Employees

It is common for an employee to be underpaid by their employer. This may occur accidentally or intentionally. Underpayment of an employee may consist of a worker being paid a lesser rate than what they are entitled to or having entitlements such as superannuation or leave loading withheld. From the 1^st January 2025, a criminal offence will apply to intentional underpayment of employees. This page outlines the new offence as well as existing offences under state laws.  

Amending legislation

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 seeks to rectify gaps in the Fair Work Act 2009, which is the Act that applies to all national systems employees.

Most, but not all, employees in Australia are national systems employees. Employees working for state and local government departments and agencies are not national systems employees and are covered by the industrial relations legislation of their state or territory.

One of the amendments made under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 is the introduction of a criminal offence consisting of intentionally underpaying an employee. This provision will come into force at the start of 2025.

What is the new offence?

The new offence will be contained in section 327A of the Fair Work Act 2009. Under that provision,  it will be an offence for an employer to intentionally engage in conduct that results in a failure to pay an employee an amount that they are owed under:

• the Fair Work Act
• a fair work instrument
• a transitional instrument

by the date that the payment is due.

The provision provides that there are exceptions in respect of certain employees for superannuation payments and for some types of leave payments.

Maximum penalty for underpayment of employees

The maximum penalty that will apply for failing to pay an amount owing to an employee is:

• for an individual, ten years imprisonment or a fine of $1.565 million plus three times the amount of the underpayment (if known);
• for a company, a fine of $7.825 million plus three times the amount of the underpayment (if known).

New civil penalties for underpayment of employees

The Fair Work Act 2009 has also been amended to provide for much harsher maximum penalties for breaches of a company’s civil obligations. These changes came into force on the 27 February 2024. An employer that has more than 15 employees may now face a fine of up to $4,695,000 for a serious contravention, with lower maximum penalties applying to smaller companies.

Accidental underpayment of employees

If an employer accidentally underpays an employee, it should immediately audit its records to ascertain the amount of the underpayment. This will involve calculating the amount the employee was entitled to, taking into account the hours they worked, any penalty rates that applied, any leave payments and leave loading, and any other entitlements under their employment contract, enterprise agreement or award. It may also be necessary to make additional tax and superannuation payments for the period of the underpayment.

The employee should be told about the underpayment and the reason it occurred. The underpayment amount should be paid to the employee as soon as possible. If the amount is more than the employer is able to pay in one go, a payment plan should be discussed with the employee.

State and territory laws

Some Australian jurisdictions already have a criminal offence consisting of intentional underpayment of an employee.

In 2020, Victoria became the first state to introduce an offence of stealing from an employee. This offence is set out in section  6 of the Wage Theft Act 2020 (Vic). It has a maximum penalty of ten years imprisonment.

Queensland also introduces a criminal offence of stealing from an employee in 2020. Under section 391(6A) of the Criminal Code Act 1899, wage theft may be prosecuted as stealing in Queensland. A maximum penalty of 10 years imprisonment applies to an instance of stealing from an employee.

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