Wage Theft Laws: Where Are We Now?
Wage theft became a criminal offence in Australia when the Closing Loopholes Act amendments to the Fair Work Act took effect. For the first time, employers who deliberately underpay their workers can face criminal prosecution, not just civil penalties.
This is not a distant threat. The Fair Work Ombudsman has made underpayment enforcement a clear priority, and the stakes have never been higher. Here is where things stand in mid-2026 and what every Australian employer needs to know.
1. What the Law Actually Says
Under the Fair Work Act as amended by the Closing Loopholes Act, it is a criminal offence for an employer to intentionally engage in conduct that results in a failure to pay an employee's minimum entitlements. This includes wages, penalty rates, overtime, allowances, and superannuation.
The criminal offence is separate from, and in addition to, the existing civil penalty regime, which allows the Fair Work Ombudsman to pursue employers through the courts for underpayments. Civil penalties can be substantial: up to $93,900 per contravention for an individual and $469,500 per contravention for a body corporate.
Who is captured?
Employers who knowingly underpay employees, whether by miscalculating rates, misclassifying employees, or deliberately applying incorrect award conditions.
Accessories to wage theft, including HR professionals, payroll managers, or business advisors who knowingly facilitate underpayment.
Franchisors and holding companies in certain circumstances where they knew of or were involved in the underpayment.
2. What the Fair Work Ombudsman Is Targeting
The FWO's enforcement priorities in 2026 reflect a clear focus on industries and employment types where underpayment has historically been most prevalent.
High-risk sectors under scrutiny:
Hospitality, cafes, and restaurants, particularly penalty rates, overtime, and junior pay rates.
Retail: award classification errors and incorrect allowances.
Construction and trades: contractor misclassification and sham contracting.
Care and disability services: underpayment of travel time, sleepover shifts, and allowances.
Labour hire: ensuring on-hire workers receive the same pay as direct employees under same job, same pay provisions.
The FWO has also increased its use of proactive compliance audits, meaning businesses can be reviewed even where no complaint has been made. If your business falls into any of the above categories, do not wait for a complaint before reviewing your pay practices.
3. The Most Common Causes of Underpayment
Most wage theft prosecutions and FWO enforcement actions do not involve employers who set out to steal from their workers. The most common causes are:
Incorrect award coverage: applying the wrong modern award or not applying one at all.
Classification errors: paying employees at a lower classification than their duties require.
Missed allowances: failing to pay tool, meal, travel, or uniform allowances required by the award.
Penalty rate errors: not applying the correct rates for weekend, public holiday, or evening work.
Superannuation miscalculations: excluding earnings that should be included in the superannuation base.
Annualised salary failures: paying an annualised salary without conducting the required annual reconciliation.
4. How to Protect Your Business: A Proactive Audit Approach
The best defence against wage theft liability, civil or criminal, is a proactive, documented compliance approach. Here is how to start:
Step 1: Confirm award coverage
Identify the modern award(s) that apply to each employee. Use the Fair Work Ombudsman's Award Finder or seek advice if you are uncertain. This is the single most important step.
Step 2: Check classifications
Review each employee's current classification against their actual duties and responsibilities. Misclassification is the most common source of systemic underpayment.
Step 3: Audit pay rates
Compare your current pay rates against the updated award pay tables effective 1 July 2026. Include base rates, penalty rates, overtime, and all applicable allowances.
Step 4: Review superannuation calculations
Confirm that your payroll system is calculating super on the correct earnings base and at the updated SG rate from 1 July 2026.
Step 5: Document everything
Keep records of your audit process, the rates applied, and any corrections made. If the FWO ever investigates, your documentation is your first line of defence.
5. What to Do If You Discover an Underpayment
If your audit reveals that employees have been underpaid, do not panic, but do act promptly. The steps below will put you in the best possible position:
Calculate the full extent of the underpayment across all affected employees and pay periods.
Back-pay employees as quickly as possible, with clear documentation of how the underpayment occurred and how the correction was calculated.
Fix the underlying error in your payroll system to prevent it recurring.
Consider whether voluntary disclosure to the FWO is appropriate — this is particularly relevant for larger or more systemic underpayments.
Seek legal or HR advice before making any public statements or contacting the FWO.
Need a Payroll Compliance Review?
Element HR can conduct a thorough payroll compliance audit for your business; checking award coverage, classifications, pay rates, and superannuation calculations against your current obligations. Getting ahead of this issue is always the right move.
Contact us at info@elementhr.com.au or visit www.elementhr.com.au to find out more.