Wage theft laws are now in force: The FWO releases guidance on how to comply, and updates its enforcement approach

Australia’s new wage theft criminal offence is now in operation, having formally commenced on 1 January 2025. The offence applies to all employers who intentionally engage in conduct that intentionally results in the underpayment of wages or entitlements to, or for the benefit of, their employees.  Coincident with this, the Fair Work Ombudsman (FWO) has published guidance to assist businesses to ensure they do not fall foul of the new laws, and its January 2025 Compliance and Enforcement Policy outlines a refreshed posture on key decision points such as whether and when to voluntarily disclose a potential contravention.

Now is the time for employers and their senior managers, legal, HR and payroll teams, to properly familiarise themselves with their wage compliance obligations and steps they can take to manage their exposure.  With jail time and significant monetary penalties on the line, we outline below steps all employers should take to minimise the risk of criminal liability and other enforcement proceedings for underpayments. These include becoming familiar with the Voluntary Small Business Wage Compliance Code (Code) and the Fair Work Ombudsman Guide to paying employees correctly and the Voluntary Small Business Wage Compliance Code (Guide), as well as understanding the broader safe harbour regime available via ‘cooperation agreements’.

Small Business Code and Guide

The Code and Guide provide shape to the legislative text of the criminal underpayment laws.  Compliance with the Code insulates small business employers from criminal prosecution where they have made honest efforts to pay the correct wages and entitlements.  Although published for small business employers, the Code and Guide are also a valuable resource for larger corporates. Together, they provide detailed insights into the regulator’s expectations as to how employers can demonstrate they are complying with their minimum pay obligations under the Fair Work Act 2009 (Cth) (FW Act), modern awards and other industrial instruments (collectively, Fair Work Instruments), thereby minimising the risk of criminal prosecution.

The Code contains non‑exhaustive examples of efforts that an employer can make, and reliable sources from which a small business employer may draw information and guidance, to correctly pay employees.  Relevant matters set out in the Code which, if adopted by any organisation, can minimise the risk of prosecution, include:

• making reasonable efforts to ascertain correct rates of pay and entitlements for employees (e.g., under modern awards or enterprise agreements);
• considering and relying on information about employees that the employer reasonably believes is accurate (e.g., the employee’s role, duties, classification, relevant qualifications, hours of work) in relation to the payment of wages and entitlements; and
• seeking information or advice in relation to the payment of wages and entitlements.

Further, the Guide explains how the Code applies and provides practical tools, checklists, examples and best practice tips for compliance, such as following payslip and record keeping obligations and staying up to date with workplace laws and industrial instruments by subscribing to the Fair Work Ombudsman’s (FWO) email updates or joining an employer association.

Current Ombudsman Anna Booth has indicated that good faith efforts to meet all employee entitlements and fix any problems are a focus for the FWO.  Ms Booth stated in a media release (accessible here) that, where a small business employer proactively undertakes an audit of their payroll compliance and, having found inadvertent failures to meet their obligations, promptly responds with full back-payments and fixing their systems to prevent further issues, this is an example of conduct that would suggest compliance with the Code. 

Notwithstanding the flush of recent guidance, it is early days for the criminal wage theft regime. We are yet to see any trends or patterns associated with enforcement in this space, and accordingly we encourage large businesses to treat the FWO’s focus on proactivity and good faith as a key driver of their wage compliance culture.

Cooperation Agreements

Cooperation agreements are intended to be used by the FWO as a vehicle to encourage self-reporting of intentional non-compliance with pay obligations and to provide safe harbour to such employers from potential criminal prosecution for failing to pay minimum pay rates under Fair Work Instruments (noting that a small business employer who has complied with the Code will already be shielded from criminal prosecution).  However, three important caveats should be noted:

1. similar to the current approach to securing an enforceable undertaking with the FWO (which shields an employer from civil proceedings by the FWO), securing a cooperation agreement will necessarily involve a process of negotiation with the FWO and it is, ultimately, at the FWO’s discretion as to whether it is satisfied an employer has met the minimum requirements for making a cooperation agreement;
2. the first phase of the process requires the employer to self-report and provide eligibility information using an online form. Once eligibility for a cooperation agreement has been established, the second phase includes an expectation that the employer voluntarily provides to the FWO further information, including potentially records and witness statements, to substantiate the information initially provided. Given a cooperation agreement is not a guaranteed outcome after this phase, it is important to note that this further information is able to be used by the FWO in relation to an investigation or as evidence against the employer and/or others, including in civil proceedings and in criminal proceedings (if a cooperation agreement is not in fact entered into or is made but later terminated or withdrawn); and
3. while obtaining a cooperation agreement (and for small business, complying with the Code) will provide safe harbour from criminal sanction, it will not protect employers from civil liability proceedings, which can be initiated by the FWO or other interested parties (eg unions, class action litigation funders).

Where an employer demonstrates a willingness to cooperate and remedy pay compliance issues, the FWO may consider entering into a cooperation agreement regarding conduct that was self-reported to it.  This agreement precludes the FWO from referring the employer for criminal prosecution.

Under the FWO’s Guide to Cooperation Agreements, which builds on the scheme legislated under the FW Act, the FWO will consider a series of discretionary matters when deciding whether to enter into a cooperation agreement, including whether the employer has made ‘full and frank disclosure’, the nature and level of detail of the disclosure, and an employer’s commitment to continued cooperation in relation to the conduct (such as by providing the FWO with comprehensive information to enable it to assess whether the employer’s actions and approach to remedying the effects of the conduct are effective).  The FWO’s assessment of the latter involves considering whether the employer has repaid or will agree as part of a cooperation agreement to repay, the underpayment amount, interest and any other compensation to affected employees, aligning with the FWO’s prioritisation of good faith.  Also, the FWO will consider whether the employer has ‘meaningfully engaged’ with the impacted parties, and their representatives, to explain and address the conduct.

The Guide to Cooperation Agreements also:

• provides guidance on how intention can be attributed to a body corporate (e.g., a corporate culture that directed, encouraged, tolerated or led to non-compliance) and how individuals may be liable for ‘related offence provisions’ (including to aid, abet, counsel, or procure the commission of an offence); and
• sets out the standard terms of a Cooperation Agreement. On their face, these are comprehensive in nature. 

Self-reporting and the FWO’s Compliance and Enforcement Policy

The FWO’s newly re-issued Compliance and Enforcement Policy 2025 (Policy) now deals with the regulator’s enforcement approach under both the criminal offence and civil liability regimes. 

As to the criminal offence regime, the Policy now contains language that largely reflects and support the FW Act’s wage theft provisions and the Guide. 

As to the civil liability regime, it is worth noting the broader language the Policy now uses in respect of the FWO’s expectations as to when employers will self-report unintentional non-compliance (noting there is no legislative compulsion to do so). 

Previously, the expectation was that employers would - “as soon as possible” - report “broader and/or systemic non-compliance”.  The Policy now refers to “broader and/or historical unintentional non-compliance”. The Policy continues to provide a general exclusion from reporting for isolated, unintentional payroll errors resulting in underpayments for a period up to 12 months, but the removal of “systemic” from the criteria for early reporting sits somewhat uncomfortably with this. 

On its face, this change in language significantly expands the scope of underpayments that the FWO expects to be self-reported – that is, the fact that an underpayment was neither broad nor systemic no longer provides a basis for non-disclosure to the FWO; rather, self-reporting is arguably expected if the underpayment simply occurred in the past. 

The Policy also foreshadows the publication in 2025 of a Remediation Guide for more complex self-reports, which will “provide a best-practice framework for conducting a large-scale worker-centred remediation program” and “outline the FWO’s approach to assessing compliance”.  This guide is likely to be a critical reference point for larger corporates who have commenced or are contemplating any significant remediation project.  Compliance with the FWO’s best practice framework will assist to reduce exposure by, amongst other things, improving prospects of avoiding FWO scrutiny and criticism and, if necessary, securing lower order enforcement outcomes such as enforceable undertakings.  We will closely monitor developments in this space. 

The next chapter in regulatory compliance and enforcement for wage underpayments has now begun, including a significantly enhanced penalties regime, and the FWO has made available new resources to assist employers to navigate it.  The FWO will therefore expect employers, and large corporates in particular, to avail themselves of the available guidance and demonstrate rigour in developing robust compliance systems to safeguard their employees’ entitlements.  The FWO has also indicated in recent publications and indeed their own published enforceable undertakings that there is a clear expectation that senior management and boards play an active role in ensuring wage compliance.  Enhanced governance around wage compliance and employment compliance as a risk class is likely to be a key area of focus for corporates.  We will be looking to publish further guidance on this in the near future. 

Please contact any of our Employee Relations and Safety lawyers if you would like assistance regarding the expanded payroll compliance and enforcement regime.