New Year, New Rules: What Agencies Need to Know About Criminal Underpayment Laws in 2025
O*NO! Starting 1 January 2025, underpaying employees – whether it’s forgetting overtime, missing penalty rates, or skipping super – could land employers in serious hot water. We’re not just talking about a slap on the wrist; this is full-on criminal prosecution territory. The clock is ticking for small businesses to get their payroll in order.
If you’re running an agency with fewer than 15 employees, you are considered a small business, and this one’s for you. The new laws aim to crack down on intentional underpayment, holding employers accountable for failing to meet obligations under the Fair Work Act 2009 (FW Act) or relevant awards and agreements. In simple terms – if you know what you should be paying or turned a blind eye and choose not to, you could be facing more than just civil penalties. So let’s break down the new rules, how they can affect you, and how you can avoid the criminal risks.
What Exactly Counts as Underpayment?
Under the Voluntary Small Business Wage Compliance Code Declaration 2024 (Code) underpayment isn’t just about base wages. It extends to:
Missing overtime, penalty rates, or allowances.
Not following the correct pay scales in awards or enterprise agreements.
Skipping entitlements like superannuation (in certain cases).
It’s all about intention. If the underpayment was deliberate and avoidable, that’s where the real trouble starts. However, if a mistake is made but you can show you sought advice or acted in good faith, so didn’t purposely turn a blind eye to the advice, there could be a way to avoid criminal charges.
How Will They Know if It Was Intentional?
Not every payroll slip-up will send small business owners running for legal cover. The key question? Was the underpayment intentional? Luckily, the law isn’t out to punish honest mistakes – the focus is on employers who deliberately shortchange their staff.
To figure out whether underpayment was intentional, regulators will consider several factors. Think of it like a checklist that determines whether you were genuinely trying to do the right thing or if you turned a blind eye. Under s 6 of the Code, here’s what they’ll be looking for, amongst other factors:
Did you try to get it right? If you made reasonable efforts to check pay rates and entitlements, you’re already on the right track. Staying informed is half the battle. But there’s more on this later.
Are you staying updated? Laws and awards change – and keeping up with them is part of your responsibility. Regulators want to know if you’ve made an effort to stay in the loop, including rules that benefit employees.
Was the info you used accurate? If you relied on what you believed were accurate details about an employe (such as role, hours, age, qualifications, classification, duties etc) this will work in your favour. Misunderstandings can happen – what matters is that you weren’t intentionally misleading.
Did you ask for help? Seeking advice from reliable sources – whether it’s Fair Work Ombudsman guidance, industry bodies, or legal experts – shows you’re serious about getting it right. Bonus points if you provided them with accurate information about your employee.
Did you fix it fast? Found an underpayment? Acting quickly to correct the issue will demonstrate good faith. Don’t let mistakes linger.
Are you cooperating? If the Fair Work Ombudsman comes knocking, full cooperation will go a long way. Working with investigators signals that you’re willing to resolve issues, not hide them.
The Code further expands on some of these factors, provides a more thorough framework to assess whether underpayment was accidental or intentional, meaning businesses need to cover all bases, not just tick a few boxes. So let’s have a quick look at these.
Getting Pay Rates Right
When it comes to making sure your employees are paid correctly, the law expects more than a quick Google search. Under s 7 of the Code, “reasonable efforts” to get pay rates and entitlements right means digging into the details.
Here’s what regulators will look at:
Awards and Agreements: Did you check the relevant modern award or enterprise agreement that applies to the employee?
Fair Work Act: Did you consider other entitlements under the Act that might affect pay?
Business Type: The nature of your business can influence pay structures – did you factor this in?
Role and Duties: Was the employee’s role, duties, and responsibilities properly reviewed?
Classification: Did you correctly classify the employee’s position?
The Fine Print: Minimum rates, allowances, overtime, and penalty rates all matter. Overlooking these details could result in underpayment, even if unintentional.
Keeping Up with the Rules
Compliance isn’t a “set and forget” exercise. To meet your obligations, you need to stay on top of the ever-changing landscape of workplace laws and employee entitlements. Here’s what counts as making a reasonable effort to stay up to date under s 8 of the Code:
Legislation Updates: Have you kept track of changes to laws and their interpretation?
Awards and Agreements: Are you across updates to modern awards, enterprise agreements, or other relevant instruments that apply to your employees?
Employee Circumstances: Did you account for changes to your employee’s role, duties, qualifications, or other key factors that might affect their pay?
Seeking Advice from the Right Places
When you’re not sure about an employee’s pay entitlements, seeking advice from reliable sources is key to staying compliant. Under s 9 of the Code, the following are reliable sources from where you could seek help in relation to employee rights and payments:
Industry Associations: Whether it’s an employer or employee association, these bodies can offer valuable insight on entitlements and best practices.
Professional Consultants: Experts like lawyers or industrial consultants can provide tailored advice specific to your business needs.
Payroll Services: If you’re outsourcing payroll, make sure your provider is up to date on the latest pay rates and entitlements.
Fair Work Ombudsman: The Ombudsman’s website is a goldmine for guidance and resources on all things workplace law.
Fair Work Commission: Another trusted source for information on awards, agreements, and employment standards.
Turning to these reliable sources shows you’re doing your homework and making a genuine effort to comply with the law.
Taking Steps to Fixing the Issue
Once you realise an underpayment has occurred, it’s essential to act quickly to make things right. Here’s what regulators will look for when assessing whether you’ve taken reasonable steps to rectify the situation under s 10 of the Code:
Repayment Efforts: Did you take immediate steps to repay the employee the owed amount?
Prompt Action: How quickly did you act once you were aware of the underpayment? The faster, the better.
Preventing Recurrence: Have you put measures in place to prevent the issue from happening again? This might include seeking further advice or reviewing your payroll systems to ensure everything is up to scratch.
Other Factors That Might Play a Role
In addition to the more obvious factors, there are other circumstances that may come into play when assessing whether an underpayment was intentional. Under s 11 of the Code these include:
Payroll Mistakes: If the failure occurred due to an error in payroll processes or mistakes by a financial institution, regulators will consider this when determining whether you acted in good faith.
Ambiguity in Interpretation: Sometimes, pay obligations can be unclear, especially with modern awards or agreements. If you made a reasonable, albeit incorrect, interpretation of your obligations, this could be a mitigating factor.
Proactive Awareness: If you identified the failure yourself, such as by conducting a payroll audit, this shows you’re actively ensuring compliance.
Employee Notification: If the employee or their representative flagged the underpayment, how quickly did you respond and take steps to fix it? Prompt action here is key.
Minimising the Failure: Did you take swift action to reduce the impact of the underpayment once you were aware of it? The quicker you act to correct mistakes, the more favourably it will be viewed.
Penalties for Criminal Underpayment
If an employer is convicted of underpayment under the new criminal laws, the penalties are severe. For individuals, the court can impose up to 10 years in prison. On top of that, significant financial penalties can also be imposed.
For a company, the maximum penalty could be the greater of 3 times the underpayment amount, or $8,250,000.
For an individual, the maximum penalty could be: 3 times the underpayment amount, or $1,650,000.
How Real Estate Agencies Can Avoid Criminal Underpayment Penalties
For real estate agencies, staying compliant with pay obligations is crucial to avoid criminal penalties. Here’s how you can minimise your risk:
Stay Informed – Regularly review relevant awards, enterprise agreements, and any changes to the Fair Work Act. This ensures you’re up to date on your employees' entitlements, including superannuation and overtime rates.
Audit Your Payroll – Conduct regular audits of your payroll systems to catch any potential errors early. Being proactive about identifying and correcting mistakes can save you from facing serious penalties.
Seek Professional Advice – Consult with payroll services, lawyers, or industrial consultants who specialise in employment law. Their expertise can help you navigate complex pay structures and ensure compliance.
Create Clear Systems – Put systems in place for tracking employee classifications, pay rates, and entitlements. Make sure any changes to employee roles, hours, or other factors are promptly reflected in their pay.
Take Action Immediately – If you discover an underpayment, act quickly to correct the issue and repay the employee. Document the steps you’ve taken and show a commitment to avoiding future mistakes.
Educate Your Team – Make sure that everyone involved in payroll understands their responsibilities. Proper training can prevent simple mistakes and ensure that your agency stays compliant.
Key Takeaways
From January 2025, underpaying employees can lead to criminal prosecution, with penalties including heavy fines and up to 10 years in prison.
Employers can avoid criminal penalties by proving they didn’t intentionally underpay, considering factors like seeking advice and rectifying mistakes promptly.
Regularly review awards, agreements, and employee entitlements to ensure compliance and avoid costly errors.
Conduct audits, seek professional advice, and implement clear payroll systems to minimise the risk of underpayment issues.
Your Next Steps
Need Help Navigating the New Underpayment Laws?
If you're unsure about how these changes impact your agency, or if you want to ensure your internal systems are fully compliant, we’re here to help. Book a free chat with us today to see how we can help your business stay on the right side of the law and avoid hefty penalties.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.