Criminal Wage Theft Penalties: What SMEs Need to Know

Criminal wage theft penalties are now a serious risk for SMEs across Australia. In the 2024 financial year, the Fair Work Ombudsman (FWO) recovered $473 million in unpaid wages and entitlements for Australian employees. Over the past three years, that total has now reached $1.5 billion.

What’s striking is that more than half of last year’s recoveries – $333 million – came from large corporate employers. The FWO also pursued major litigation and secured enforceable undertakings from 15 large organizations requiring back payments to staff.

So while the headlines often focus on big business, the rules apply to everyone – including SMEs.

Why Underpayments Happen

According to Tracy Angwin, Director of the Australian Payroll Association:

“While some underpayments are deliberate, most happen because payroll legislation is incredibly complex. The modern award system, multiple pay rules, and technology errors can create a perfect storm if payroll isn’t monitored carefully.”

For SMEs juggling limited resources, this complexity can easily trip you up—even when you’re trying to do the right thing.

Wage Theft is Now a Criminal Offence

From January 2025, deliberate underpayment of employees officially becomes a criminal offence under changes to the Fair Work Act 2009.

• The FWO can investigate suspected wage theft and refer serious cases to the Commonwealth Director of Public Prosecutions or the Australian Federal Police.
• If convicted:
  
  • Individuals face up to $1.65 million in fines or 10 years in prison, or both.
    
  • Companies risk up to $8.25 million in fines, or three times the amount underpaid, whichever is greater.
    

“These aren’t just bigger fines-they’re game-changing consequences,” Angwin warns. “Board members and executives need to understand that wage compliance is no longer just an HR or payroll issue. It’s a governance and personal liability issue.”

What’s Changing for SMEs

1. Higher Civil Penalties for Larger Employers

If your SME employs 15 or more staff, the stakes are higher. Breaches of workplace laws—including awards, agreements, pay slip requirements, and record keeping—now attract tougher penalties.

2. Safeguards for Smaller Employers

If your business has fewer than 15 employees, there’s protection under the new Voluntary Small Business Wage Compliance Code.

• If you follow the Code and an underpayment was unintentional, you can avoid criminal prosecution.
  
• Any business, regardless of size, can also seek a cooperation agreement with the FWO if it self-reports potential breaches.
  

As Angwin explains:

“Small businesses now have a safety net if they genuinely make a mistake and take steps to fix it. But it’s not a free pass—the Code requires following best practice payroll processes.”

Why SMEs Must Act Now

Legal experts expect early prosecutions to focus on clear, intentional underpayments. But that doesn’t mean SMEs can relax. Mistakes still bring financial, legal, and reputational risks.

Here’s what SMEs should be doing:

• Run regular payroll audits – Don’t assume your system is correct; check it.
  
• Stay on top of changes – Update pay rates immediately after every award change or wage increase.
  
• Seek expert support – Accountants, payroll specialists, and HR advisors can help avoid costly mistakes.
  
• Document everything – Good record keeping is your best defense.
  

And remember: accessorial liability applies. Directors, managers, and even external accountants or payroll providers can be held personally responsible if they’re involved in any underpayments.

Key Takeaway for SMEs

The message is clear: payroll compliance is no longer optional, and the risks are now personal.

If you’re an SME owner, don’t wait for the FWO to come knocking.

• Review your payroll processes,
  
• Fix any gaps, and
  
• Put safeguards in place today.
  

Because in 2025, getting payroll wrong isn’t just costly—it could put your business, and your future, on the line.