Businesses must clean up payroll systems or risk facing criminal offences

With the new wage theft laws coming into place, it’s imperative that businesses get their payroll systems in line as deliberate wage theft becomes a criminal offence.

Australian businesses are being urged to get their payroll systems sorted as the staunch new wage laws, which commenced on 1 January 2025, offer stark consequences for those who fail to abide by them.

As previously reported on HR Leader, the new statutory provisions, a part of the well-publicised Closing Loopholes legislation, offer organisations increased fines and jail time in certain circumstances for those who commit deliberate wage theft. Corporate senior executives, for example, who are involved in intentionally underpaying employees could potentially face up to 10 years in prison.

Clayton Utz partner and workplace relations expert Saul Harben touched on the new laws and their consequences, calling on businesses with large workforces to be prepared.

“Now is a timely reminder for companies to carry out audits of their payroll systems to make sure they are fit for purpose and compliant with the new laws,” said Harben.

“This is particularly important for large companies in the retail and hospitality sectors that hire extra staff to work across the busy festive and holiday season. The potential consequences for companies and executives found to have deliberately underpaid their staff are serious – you could end up in jail or face a multimillion-dollar fine.”

Harben stated that employers will need to exercise their due diligence to ensure their employees are being paid accurately and on time while receiving their entitlements. This can often depend on payroll systems.

“Payroll systems are complex. Most of the time, underpayments are not intentional. Companies need to figure out if they are compliant. Alongside the risks of hefty fines and jail time for deliberate offences, serious cases of unintentional underpayments can lead to significant remediation programs which could trigger a solvency event and land a company in administration – not to mention the significant reputational damage,” said Harben.

“Some of the most common issues related to employee underpayments include the use of outdated payroll IT systems, complex enterprise agreements which usually have annual pay increases and are renegotiated in full every two to four years, and a lack of support for payroll staff who are administering the payroll system. We have also seen non-financial issues arise, including miscalculations of annual leave and long service leave entitlements.”

“It can be an easy mistake to make, and once a mistake has been made and embedded in a payroll system, it can continue and compound for years without a company’s knowledge.”

Businesses also face the potential of massive fines, greater than three times the initial underpayment.

“For cases of underpayments that are not deliberate, the cost can be significant in terms of remediation, litigation and civil penalties – as can the reputational damage,” said Harben.