From 1 January 2025, Australia’s approach to wage underpayments significantly stepped up. Intentional underpayment of employee entitlements (often called wage theft) can now attract criminal penalties in addition to civil consequences. For employers, that means payroll accuracy and record-keeping are no longer “back-office nice-to-haves”; they’re core risk controls.
This guide breaks down what the 2025 criminal underpayment laws mean in practice, how they interact with everyday systems like STP and TPAR, and provides a clear employer checklist to reduce your exposure.
Quick note: legislation and regulator guidance continue to evolve. Treat this as practical commentary, not legal advice. If you suspect underpayments or classification issues, seek professional advice promptly.
What are the 2025 criminal underpayment laws in Australia?
In short, intentional underpayment of required amounts (wages, penalty rates, allowances, super, and other entitlements under the Fair Work Act or an applicable award/industrial instrument) can be prosecuted as a criminal offence. Honest mistakes remain a civil matter, but deliberate conduct or turning a blind eye to known issues is squarely within scope.
Key ideas employers should understand:
- “Intentional” matters. The criminal offence targets conscious, deliberate underpayment. Poor systems or errors that are promptly identified and fixed are treated differently from those designed to short-pay staff.
- Breadth of entitlements. Required amounts include base pay, overtime, loadings, allowances, leave entitlements, superannuation, and some salary sacrifice obligations.
- Attribution to companies. Prosecutors can look at corporate culture, whether your business set, tolerated, or failed to prevent non-compliance. Documented systems, training, and swift remediation help show a compliance culture.
- Penalties are serious. Maximum criminal penalties include substantial fines and potential imprisonment for individuals, with higher fines for corporations. In both cases, penalties can be calculated as the greater of a set maximum or a multiple of the underpayment.
Why this matters: if you’ve relied on informal rostering, old award rates, or manual spreadsheets, your compliance risk has shifted. The standard now expects proactive controls, documented processes, and verifiable payroll accuracy.
What about small businesses?
To help smaller employers, the government has introduced a Voluntary Small Business Wage Compliance Code (the “Code”) framework. In essence, it outlines practical steps SMEs can take to demonstrate a genuine compliance effort, such as regular pay reviews, internal audits, and prompt rectification when issues are found. If you follow the Code in good faith and still make a mistake, that conduct is far less likely to be referred for criminal prosecution (civil liabilities can still apply).
The takeaway: even micro and small employers need a simple but documented system to show that payroll compliance is a priority, not an afterthought.
How everyday systems tie in: STP, BAS, TPAR and super
Criminal underpayment risk often shows up where basic processes are weak. Four high-impact areas:
- Single Touch Payroll (STP) — “STP errors”
- Late or incorrect STP submissions can indicate gaps in pay calculations or super accruals.
- STP Phase 2 requires better data granularity (allowances, paid leave types, child support, etc.). That increases both visibility and responsibility.
- BAS and PAYG withholding (ATO touchpoints)
- PAYG W reporting must reflect what was actually paid and owed. Mismatches between payroll journals and BAS figures can flag potential underpayment or classification issues.
- Superannuation
- Pay super on time and in full to the correct fund against ordinary time earnings (OTE). Super guarantee shortfalls attract interest, admin charges, and separate ATO processes.
- TPAR (Taxable Payments Annual Report)
- If you operate in a TPRS-covered industry (e.g., building and construction, cleaning, courier, IT, security), TPAR helps the ATO match payments to workers/contractors. Misclassification of employees as contractors can trigger underpayment risk as well as tax exposure.
If you get these basics right and keep evidence, you’ll eliminate a huge chunk of risk.
Are you at risk? A quick employer diagnostic
Answer honestly:
- Awards & classification
- Do you have the correct modern award(s) and classification levels for each role?
- Have you updated base rates, penalty rates, allowances, and leave loading since the last wage review?
- Timesheets & rostering
- Are overtime, penalty periods, broken shifts, and minimum engagements applied correctly?
- Do you reconcile timesheets to payroll totals each cycle?
- Leave & loadings
- Are annual leave loading rules applied correctly where required by the award?
- Are public holiday entitlements and substitute days recorded accurately?
- Super & deductions
- Is it super calculated on the correct OTE base?
- Are salary sacrifice arrangements documented and reflected correctly in STP?
- Record-keeping & approvals
- Do you keep time and wage records for at least 7 years (best practice), with clear approvals and change logs?
- Can you produce a complete calculation pack for any employee on request?
- Rectification culture
- If a discrepancy is raised, do you investigate, calculate, repay, and document within a defined timeframe?
- Are staff told how to query pay without fear?
If you hesitated on any line, prioritise that area in your first compliance sprint.
The employer’s legal risk map (plain-English)
- Criminal liability: applies to intentional underpayment. Evidence can include internal emails, directives, repeated ignored warnings, or a pattern of short-paying.
- Civil liability: applies to non-intentional breaches (still costly). You may face backpay, interest, penalties, and enforceable undertakings.
- Personal exposure: directors, managers, and those “involved in” contraventions can be personally liable in civil matters. Serious criminal conduct can also capture individuals.
- Corporate culture: prosecutors may ask: did you set up systems, training, and audits to prevent errors? Or did you accept “that’s just how we do it”?
A practical employer checklist for 2025 payroll compliance
Use this as a step-by-step action plan. Keep a dated record as you complete each step.
1) Map your legal framework
- List your applicable awards/agreements and employee classifications.
- Record where you source updates (Fair Work updates, industry bodies, advisor bulletins).
- Keep a register of last reviewed dates for rates, allowances, and loadings.
2) Clean your master data
- Confirm employee details, TFNs, addresses, super fund choices, and pay calendars.
- Verify employment status (casual vs permanent; part-time hours; fixed-term limits).
- Align cost centres and general ledger mappings for payroll journals.
3) Tighten timesheet and rostering rules
- Require approved digital timesheets for hourly and shift staff.
- Embed roster rules for penalties, breaks, minimum engagements, and overtime triggers.
- Reconcile worked hours to payroll before every pay run; spot-check exceptions.
4) Reconcile payroll to STP and BAS
- After each pay run, reconcile gross, PAYG W, super, and net pay to the STP event.
- Monthly/quarterly, reconcile payroll totals to BAS and the general ledger.
- Resolve discrepancies immediately and keep a paper trail.
5) Super guarantee hygiene
- Confirm super rate and OTE treatment for allowances/bonuses.
- Check the clearing house cut-off dates and pay on time to avoid the SG Charge.
- Reconcile contributions posted by funds against what you sent.
6) Award interpretation and testing
- Use payroll software with award interpretation (or a verified add-on).
- Quarterly, pick a sample of employees and manually re-calculate entitlements to test the system.
- Document your test method and outcomes.
7) Ongoing training and culture
- Train managers and payroll staff annually on changes to awards and the criminal underpayment regime.
- Publish a short Pay Query Pathway for employees: who to contact, expected response times, and escalation.
8) Back-pay and remediation protocol
- Maintain a written Rectification SOP: how to investigate, calculate, and pay arrears (including interest, where applicable).
- Communicate clearly and respectfully with affected employees.
- Log lessons learned and update your controls to prevent repeats.
9) Use the small business wage compliance framework (if eligible)
- If you’re a small business, align with the voluntary Code steps: periodic audits, documented reviews, prompt remediation, and manager training.
- Keep evidence, the aim is to show active prevention and rapid correction when issues arise.
10) When to seek help
- Complex award coverage (multi-award workforce, irregular shifts).
- Historic classification or leave loading queries.
- Signs of systemic issues from STP/BAS mismatches.
Contractor vs employee risk in TPRS industries (TPAR).
Common underpayment triggers (and simple fixes)
Misclassification of employees
- Trigger: Treating someone as a contractor who should be an employee, or incorrect award level.
- Fix: Review role duties, direction, and integration into your operations. Reclassify promptly if needed and adjust the payroll setup.
Out-of-date base rates and loadings
- Trigger: Not applying annual wage increases or award changes.
- Fix: Subscribe to updates, set calendar reminders, and test new rates in a sandbox before go-live.
Unpaid or mis-calculated overtime/penalties
- Trigger: Manual timesheets or “hand-typed” adjustments.
- Fix: Introduce award-aware time and attendance tools; lock manual edits behind approvals.
Incorrect super on certain payments
- Trigger: Paying allowances/bonuses without checking OTE treatment.
- Fix: Maintain a simple OTE decision table; test edge cases with your advisor.
Leave loading oversights
- Trigger: Missing or misapplying award-required leave loading.
- Fix: Automate rules in payroll software and audit holiday periods.
Payroll–STP–BAS mismatches
- Trigger: GL journals adjusted after pay without updating STP/BAS.
- Fix: Set a hard close checklist that reconciles all three every cycle.
If you discover underpayments: act fast, document everything
- Pause and scope
- Identify affected periods, awards, and employees. Export full data from payroll, T&A, and rostering systems.
- Calculate and validate
- Recalculate entitlements using award interpretation and manual checks. Consider engaging an external specialist for complex cases.
- Communicate with care
- Notify affected employees, apologise plainly, and outline the steps and timeline for repayment. Provide a contact for questions.
- Repay and confirm
- Pay arrears (and interest where appropriate) and issue clear pay-slip notes or a separate statement.
- Fix root causes
- Update systems, training, and SOPs. Document the improvements for your compliance file.
- Consider voluntary engagement
- In more serious or systemic cases, seek advice on self-reporting pathways and cooperation approaches with the regulator.
The goal is to show you found it, fixed it, and fortified the system.
Building a defensible “compliance file”
If you were asked tomorrow to show your wage compliance culture, what would you hand over? At a minimum, assemble:
- Award and classification register with last review dates
- Pay rate change logs and approval workflows
- Timesheet/roster approvals and exception reports
- Quarterly payroll–STP–BAS reconciliation packs
- Super remittance evidence and fund confirmations
- Training records for payroll and managers
- Rectification SOP and recent remediation evidence (if any)
- Copies of your employee pay query pathway
A tidy file helps demonstrate intent, capability, and continuous improvement.
Frequently Asked Questions
Do the criminal underpayment laws apply to honest mistakes?
No, the criminal offence targets intentional conduct. Honest mistakes still carry civil risk, so fix them quickly and document your steps.
Can historical issues be caught?
Patterns of deliberate conduct that continue past 1 January 2025 may be examined. Don’t sit on known problems; remediate and strengthen controls.
What if I’m a small business with limited resources?
Follow the voluntary wage compliance framework for SMEs. Keep processes simple but documented: rate reviews, sample audits, and quick remediation.
How do STP errors affect my risk?
STP mismatches can flag problems. Fix the underlying calculation, correct STP, and reconcile to BAS and the GL. Keep a record of the fix.
Keeping payroll compliance simple
Most underpayments aren’t malicious; they’re the product of outdated systems, manual spreadsheets, and rules that change more often than your roster. The 2025 laws raise the ba for 2026r, but they also reward common sense: know your award, lock in clean processes, reconcile regularly, and fix issues fast.
Need clear eyes on your payroll? Get in touch with Accounts All Sorted to set up a no-fuss payroll review and a pragmatic plan for staying on top of your obligations in 2025 and beyond.
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