Wage theft vs payroll mistakes under Australia's criminal underpayment laws

The rules around underpaying staff have changed twice in 18 months, and both changes raise the stakes. Since 1 January 2025, intentionally underpaying an employee has been a criminal offence anywhere in Australia, with jail time on the table. And since 1 July 2026, Payday Super has required employers to pay super with every pay run rather than once a quarter, which closes off one of the oldest underpayment tactics in the book.

The money involved is not small. The Fair Work Ombudsman (FWO) recovered $358 million for more than 249,000 underpaid workers in 2024-25 alone, and more than $2 billion over the past five years.

Not every underpayment is wage theft, though. Plenty are genuine stuff-ups, and the law treats the two very differently. The dividing line is intent. In this article, I'll walk through what counts as wage theft, how honest payroll mistakes happen, what each one costs you, and how to keep your business on the right side of both.

Quick overview: wage theft vs payroll mistakes

Both involve an employee getting less than they're legally owed. Everything else about them is different, from the legal machinery that responds to the penalties at the end of it.

The catch is that intent isn't always obvious from the outside. Some businesses claim a mistake when they knew exactly what they were doing. Others genuinely mess up, because Australian payroll is about as complicated as payroll gets. Legally, though, intent is the problem. A deliberate underpayment is a crime. An honest error that gets fixed is a civil matter.

What is wage theft?

Wage theft is a deliberate decision to pay people less than they're entitled to. Since 1 January 2025, it has been a criminal offence under the Fair Work Act, introduced through the Closing Loopholes reforms. The offence turns on intention. An employer who knowingly underpays wages, entitlements, or super can face up to 10 years in prison, plus fines of up to $1.82 million for individuals or $9.1 million for companies, or three times the underpayment if that's higher. The FWO investigates and refers matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for prosecution.

One national offence also means the old state-by-state patchwork is mostly gone. Victoria repealed its pioneering Wage Theft Act offences in 2025 once the Commonwealth offence made them redundant. Queensland's separate Criminal Code offence from 2020 technically remains, but the federal offence is now the main focus everywhere.

Here are the most common ways it happens.

Underpaying award or minimum rates

Every employee covered by a modern award has a legal right to that award's minimum rates. Employees outside the award system are entitled to the national minimum wage, which is $26.44 per hour from 1 July 2026, the first time it has cleared $1,000 per week. A restaurant owner who knows the correct Restaurant Industry Award rate for a junior waiter and keeps paying below it, because the waiter never questions it, is committing wage theft. A few dollars an hour adds up fast across a year of shifts.

Not paying overtime or penalty rates

If an employee is entitled to overtime or penalty rates, the employer has to pay them. A supermarket that rosters staff on Sundays but pays the Monday-to-Friday rate, knowing the General Retail Industry Award requires more, is pocketing the difference deliberately. That's theft, not a rounding error.

Not paying superannuation

Super is part of an employee's pay, full stop. The super guarantee is 12% of ordinary time earnings, and under Payday Super, employers must now get contributions into the employee's fund within seven business days of payday. The quarterly cycle is gone, and so is the old move of sitting on super for months to ease cash flow. An employer who withholds contributions is now visible to the ATO within days, not months, because super liabilities are reported through Single Touch Payroll every pay run.

Misclassifying employees as contractors

Some misclassifications are honest confusion. But some are a tactic to dodge award rates, super, and paid leave. If someone works regular hours, uses company equipment, and answers to a manager, they're probably an employee, whatever their contract says. Labelling them a contractor to avoid entitlements is wage theft.

Deducting pay unfairly

Docking wages for breakages, till shortages, or mistakes is unlawful unless the employee agrees in writing and the deduction is reasonable. A manager who makes staff cover wrong orders out of their own pay, without consent, is taking money that isn't theirs.

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What are payroll mistakes, and how do they happen?

A payroll mistake is an underpayment (or overpayment) nobody intended. It still breaks the law and still has to be fixed, but it isn't a crime. The distinction is important because Australian payroll gives you so many ways to get it wrong in good faith. There are more than 100 modern awards, rates move every July, and the rules for leave and super carry their own traps. These are the most common failure modes:

• Applying the wrong award rate or classification level: a firm paying its junior staff what it genuinely believes is the correct Legal Services Award rate, without checking the current pay tables, is underpaying without knowing it.

• Missing the annual increase: award rates rose 4.75% from the first full pay period on or after 1 July 2026, on top of 3.5% the year before. A payroll system that doesn't update automatically keeps paying last year's rates, and every affected employee is underpaid from that pay run forward.

• Misclassifying employment type: treating someone as casual when their regular, ongoing pattern of work points to part-time means missing paid leave entitlements, even with a casual loading applied.

• Super calculation errors: entering the wrong earnings base, or leaving commissions and allowances out of ordinary time earnings, shortchanges every contribution. On a $90,000 salary keyed in as $80,000, the 12% super guarantee loses the employee $1,200 a year without anyone even realising.

• Leave accrual errors: annual, personal, and long service leave all accrue differently, and long service leave rules vary by state. A system that mistracks accruals can pay out two weeks of leave when three are owed.

Intent is what keeps these on the civil side of the line. If you find the error, fix it fast, and backpay in full, it stays a payroll mistake.

What happens when you get it wrong

The consequences increased based on intent, but even honest errors still carry costs. Here's how the exposure breaks down.

Criminal prosecution, for deliberate underpayment only

This is the wage theft lane. Prosecution requires proof of intent beyond reasonable doubt, so genuine mistakes can't land you here. For employers who do cross the line, the maximums are up to 10 years' imprisonment for individuals, and fines of up to the greater of three times the underpayment or $1.82 million for individuals and $9.1 million for companies. Directors, managers, and others involved in the conduct can be personally liable.

Civil penalties, whatever the intent

Underpayments that don't meet the criminal bar still breach the Fair Work Act. Based on the Commonwealth penalty unit of $364 that applies from 1 July 2026, the maximum civil penalties per contravention are:

• Individuals: up to $21,840, rising to $218,400 for serious contraventions.

• Companies with fewer than 15 employees: up to $109,200, rising to $1,092,000 for serious contraventions.

• Larger companies: the greater of $546,000 or three times the underpayment, rising to the greater of $5,460,000 or three times the underpayment for serious contraventions.

Each underpaid employee can count as a separate contravention, so the numbers multiply quickly. The FWO's record 2024-25 penalties included $15.3 million against the operators of the Sushi Bay outlets for deliberately underpaying 163 workers. The regulator also issued more than 1,200 compliance notices that year, each one a formal deadline to backpay workers or face escalation.

Backpay, interest, and super charges

Whatever else happens, the shortfall gets repaid. Courts and the FWO can order backpay with interest, and for super specifically, the ATO's Superannuation Guarantee Charge now bites from the first missed payday rather than the end of a quarter. Late super means paying the shortfall plus interest and an administrative uplift that grows the longer you wait. For a business that has underpaid for months or years, remediation alone can run to hundreds of thousands of dollars before any penalty is added.

Reputational fallout

Underpayment stories travel. Customers boycott, employees look elsewhere, and investors get nervous. Big brands wear years of headlines. Small businesses can fold on the bad press alone. The reputational cost lands whether the underpayment was deliberate or not, which is its own argument for catching errors before someone else does.

The small business safe harbour

There's a formal mechanism that separates honest mistakes from wage theft for small employers, and surprisingly few people know about it. If a business with fewer than 15 employees complies with the Voluntary Small Business Wage Compliance Code, the FWO cannot refer it for criminal prosecution over an underpayment. Compliance essentially means demonstrating you didn't intend to underpay and made reasonable efforts to get pay right: checking rates against current award tables, keeping up with changes, seeking advice when unsure, and fixing errors promptly when they surface.

Larger employers have a parallel option in cooperation agreements, where self-reporting an underpayment to the FWO takes criminal referral off the table while the agreement holds. Civil penalties remain possible under both pathways, so this isn't a free pass. But it solidifies what I'd tell any employer who finds an underpayment: the worst response is to sit on it. Self-identify, backpay in full, document what you fixed, and the law's most serious consequences are designed to pass you by.

Preventing wage theft and payroll mistakes

Most underpayments trace back to process gaps rather than bad intent, and the same controls close both doors.

Anchor every employee to the right instrument

Identify the correct award or enterprise agreement for every role, confirm the classification level, and check for the annual increase each July. Don't rely on last year's pay guide; rates changed on 1 July 2026 and will change again next year. If you're on an enterprise agreement, confirm its base rates still clear the new award minimums, because they're not allowed to fall below.

Automate the moving parts

Manual payroll is where most honest errors are born: outdated spreadsheets, retyped hours, missed rate updates. Payroll software that syncs employee data, time tracking, and leave in real time removes most of the retyping, and with Payday Super now live, automating contributions per pay run has shifted from nice-to-have to survival requirement. Digital timesheets and STP-integrated reporting keep the ATO picture matching reality.

Audit before someone else does

Review payslips, timesheets, and super remittances against current rates every few months, and after every award change. If you find a shortfall, the playbook is the one above: fix it fast, backpay in full, and document it. Speed is what keeps an error looking like an error.

Train the people who touch pay

Payroll compliance isn't only a finance job. Managers decide rosters and classifications, HR handles onboarding and pay setup, and all of them need working knowledge of award conditions, employment types, and what changed this July. A standing half-yearly check of Fair Work updates is cheap insurance.

Give employees a way to flag problems

Plenty of underpayments surface first on a payslip an employee actually reads. Make it easy and safe to raise a query, investigate quickly, and keep records of what you found and fixed. An internal complaint handled well is vastly cheaper than the same complaint made to the FWO, which logged more than 25,000 anonymous reports last year.

Get payroll right with Rippling

Everything above gets easier when payroll isn't running on disconnected systems. Rippling Payroll is built on the Rippling platform's single source of truth for employee data, so pay rates, hours, leave, and entitlements flow straight from HR and time tracking into every pay run without double entry. That unified data model is what reduces the risk of the classic mistakes: stale rates, missed accruals, and retyped numbers.

For Australian teams, that looks like:

• Award-aware pay runs: Base pay, overtime, and allowances apply automatically for supported modern awards, so a July rate change doesn't depend on someone remembering to update a spreadsheet.

• Payday Super, handled: Super calculates on the correct earnings base and pays out with the pay run, in step with the seven-business-day rule.

• ATO reporting built in: PAYG withholding and STP2 lodgement happen as part of the run, keeping your reported liabilities current.

• Leave that adds up: Annual, personal, and long service leave sync from HR records, so payouts match accruals.

• AI where it helps: Rippling's AI is built for HR, Payroll, IT, and Finance, so you can delegate tedious tasks like pay run checks and surface anomalies before you hit approve.

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Wage theft FAQs

What is the most common form of wage theft?

Underpaying award rates, by ignoring penalty rates, miscalculating overtime, or simply paying below the minimum. Deliberate misclassification of employees as contractors and unpaid super are close behind, though Payday Super's per-pay-run visibility has made super underpayment much harder to sustain quietly.

Who is liable for wage theft?

Business owners, directors, and managers who intentionally underpay staff can be personally prosecuted for wage theft, with up to 10 years' jail and fines of up to the greater of three times the underpayment or $1.82 million. Companies face fines up to the greater of three times the underpayment or $9.1 million. Others involved in the conduct, including HR staff and advisers, can also be liable.

Who is most affected by wage theft?

Casual, young, and migrant workers, who are least likely to know their entitlements or feel safe speaking up. It concentrates in hospitality, retail, cleaning, and construction, where penalty rates and overtime make up a bigger share of take-home pay.

Is paying employees in cash illegal in Australia?

Cash wages are legal if everything around them is done properly: tax withheld, super paid on time, payslips issued, and records kept. Using cash to skip tax or super is wage theft, and poor record-keeping compounds the risk, because if an employee disputes their pay and you have no records, the law leans toward the worker's account.