Last updated: 31 October 2026. Written by the FreeMyCloud team.
Checked against the Fair Work Ombudsman’s 29 October 2026 annual report media release and its criminal underpayment, Voluntary Small Business Wage Compliance Code, record-keeping, pay slip, infringement notice, compliance notice and enforceable undertaking pages, and the ATO’s Payday Super and super guarantee charge pages, on 31 October 2026.
Wage theft in Australia is back in the headlines. On 29 October 2026 the Fair Work Ombudsman published its 2025-26 annual report and said it had back-paid $453 million to more than 181,000 workers in the year, a 27 per cent increase, while anonymous tip-offs about suspected workplace breaches hit a record 31,596. Most of that money did not come from employers who set out to cheat anyone. It came from pay runs that drifted away from the award, records that were not kept, and errors nobody checked until a regulator or a tip-off did.
This post sets out what the regulator reported, where the legal line sits between an honest underpayment and the criminal offence now called wage theft, what a small employer must keep on file, and how to fix an underpayment the way the regulator asks. FreeMyCloud is not a registered tax or BAS agent and does not lodge anything; the practical sections are about the records and the checks, which is the part a bookkeeper owns.
- The Fair Work Ombudsman recovered $453 million for more than 181,000 workers in 2025-26, about $95 million more than the year before, and received a record 31,596 anonymous reports.
- Wage theft is the criminal offence of intentionally underpaying wages or entitlements, in force since 1 January 2025; an honest mistake is not wage theft, but it is still an underpayment that must be back-paid.
- Maximum penalties: for a company the higher of three times the underpayment or $9.1 million; for an individual up to 10 years in prison, a fine of the higher of three times the underpayment or $1.82 million, or both.
- A small business employer (fewer than 15 employees) that has complied with the Voluntary Small Business Wage Compliance Code cannot be referred for criminal prosecution over an underpayment.
- Time and wages records must be kept for seven years and a pay slip given within one working day of pay day; a missing record can bring an infringement notice of up to $2,184 per breach for an individual or $10,920 for a company.
What happened: the Fair Work Ombudsman’s 2025-26 annual report
The Fair Work Ombudsman said on 29 October 2026 that it received a record 31,596 anonymous reports in 2025-26, 23 per cent more than the 25,608 received in 2024-25. More than 181,000 workers had $453 million in underpaid wages back-paid during the year, about $95 million more than the year before, and cumulative back-payments over six financial years now stand at close to $2.5 billion. Large corporates accounted for $217.3 million, paid to more than 110,000 workers. SmartCompany reported on 30 October that proactive investigations rose 86 per cent.
Two of the regulator’s priority sectors are familiar to small employers. In fast food, restaurants and cafes it recovered more than $5.6 million for 3,538 workers and commenced 16 litigations, about 27 per cent of all litigations for the year. In building and construction it recovered more than $6.8 million for 932 workers. The Fair Work Ombudsman, Anna Booth, said anonymous reports “help us identify emerging issues, detect patterns, and target education, engagement and compliance activities where they’re needed most”.
| Fair Work Ombudsman, 2025-26 | Figure | Change |
|---|---|---|
| Back-payments recovered | $453 million, more than 181,000 workers | Up about $95 million (27 per cent) |
| Anonymous reports | 31,596 (a record) | Up 23 per cent from 25,608 |
| Enforceable undertakings | 15, with $106.6 million back-paid under them | Not stated |
| Compliance notices | 1,392, recovering more than $33 million for more than 17,000 workers | Not stated |
| Infringement notices (pay slips and records) | 791, totalling $831,891 in fines | Not stated |
| Litigations and court penalties | 60 commenced, $2.3 million in penalties | Not stated |
Source: Fair Work Ombudsman media release, 29 October 2026; SmartCompany, 30 October 2026.
What it means for small business
Three things in the report matter more to a business with five to fifty staff than the headline total. The tip-off line is now the regulator’s largest source of leads, and most tip-offs come from staff who have compared a pay slip with the award. Then 791 infringement notices went out for records and pay slips alone, the breaches an inspector can fine on the spot without proving any underpayment. And the regulator keeps naming fast food, restaurants and cafes and building and construction as priority sectors, where many of the hospitality and building clients FreeMyCloud works with sit.
None of this changes an employer’s obligations; it changes the odds that a gap will be found. The regulator’s own guidance is the practical response: know which award applies, check the rate against it, keep the time and wages records, issue pay slips on time, and fix any shortfall quickly. Those are bookkeeping tasks. For what an inspector looks for on the day, see our post on payroll compliance in Australia.
What is wage theft, and how is it different from an underpayment?
Wage theft is the everyday name for the criminal offence of intentionally underpaying an employee’s wages or entitlements. The Fair Work Ombudsman’s criminal prosecution page says an employer may commit the offence where they were required to pay an amount to an employee (wages or paid leave) or for the employee’s benefit (superannuation or a salary sacrifice arrangement) and intentionally did something that resulted in it not being paid on or before the day it was due. The regulator’s example is an employer paying $12 an hour knowing it is below the minimum wage.
An underpayment is the wider category: any shortfall against the award, agreement or National Minimum Wage, however it happened, from a casual paid the permanent rate to a Sunday penalty the payroll system never applied. The Fair Work Ombudsman is explicit that the criminal offence “doesn’t include honest mistakes”. An honest mistake is still owed in full, with the super and tax that go with it, and can still draw a compliance notice or civil action. The difference is intent, and the difference in consequence is very large.
Underpayment is a civil matter fixed with back pay and better systems; wage theft is intentional underpayment and a criminal offence since 1 January 2025.
Wage theft laws in Australia: what changed on 1 January 2025
From 1 January 2025, intentional underpayment became a criminal offence under sections 327A to 327C of the Fair Work Act 2009. The Fair Work Ombudsman investigates and, where there is sufficient evidence and prosecution is in the public interest, refers matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police, the only bodies that can start a criminal case. For a company, the maximum fine is the higher of three times the underpayment or $9.1 million. For an individual, the maximum is 10 years in prison, a fine of the higher of three times the underpayment or $1.82 million, or both.
The offence does not reach every entitlement for every employee: for staff of individual operators, partnerships and other unincorporated employers in New South Wales, South Australia, Queensland, Tasmania and Victoria, superannuation and long service leave sit outside the federal offence, though the rest of their wages are covered. An employer who voluntarily reports conduct that could be an offence can apply for a cooperation agreement, which stops referral for prosecution. Victoria and Queensland also have state wage theft provisions; this post covers the federal offence.
Does the Voluntary Small Business Wage Compliance Code protect a small employer?
Against criminal referral, yes. The Code page says the regulator cannot refer a small business employer (fewer than 15 employees, counting regular casuals) for criminal prosecution if satisfied the employer complied with the Code, meaning the underpayment was not intentional. It weighs the overall picture: reasonable steps to work out the correct rates, keeping up to date with changes, relying on accurate employee information, seeking advice from a reliable source, fixing the underpayment and cooperating with any inquiry. The Code does not stop civil enforcement.
Payslip, record keeping and employee records: what every employer must keep
The 791 infringement notices in the annual report were all for the same family of breach: records and pay slips. The record-keeping page says employers must keep time and wages records for seven years, legible, readily accessible to an inspector and unchanged except to correct an error. They cover the employee’s name, start date and employment type; the pay rate, gross and net pay and deductions; every loading, penalty rate, allowance or bonus; overtime hours with start and finish times; hours worked by casuals; leave taken and balances; superannuation paid and the fund; and copies of any averaging or flexibility agreements. The ATO’s rules for the same pay run generally run five years, so seven covers both.
Employee records are private: only the employer, payroll staff, the employee and authorised people such as an accountant can see them, and an employee who asks must be shown their own. Where records are missing or wrong, inspectors can fine the employer, and in some court cases an employer without records has to prove they did not underpay. The Single Touch Payroll file sent to the ATO each pay day is not a substitute: it reports what was paid, not the hours and classification that show whether it was right.
Pay slip rules: within one working day of pay day
The pay slips page says a pay slip is due within one working day of pay day, on paper or electronically. It must show both names, the employer’s ABN, the pay period and payment date, gross and net pay, the ordinary hourly rate with the hours and amount at that rate, every loading, allowance or penalty rate that can be separated out, each deduction, and the super contributions for the period with the fund’s name or number. Our Xero vs MYOB payroll comparison covers how each product stores pay slips and super history.
Seven years for time and wages records; one working day for the pay slip. Both are fined on the spot when missed.
Infringement notice, compliance notice or enforceable undertaking: what each one is
The annual report counts three enforcement tools short of court, summarised here from the Fair Work Ombudsman’s own pages as at 31 October 2026.
| Tool | What it is and when it is used | Amounts and timing |
|---|---|---|
| Infringement notice | On-the-spot fine from a Fair Work Inspector for records not kept, wrong pay slip or record details, or pay slips not issued within one working day; can be issued on the first occasion | Up to $2,184 per breach (individual) or $10,920 (company); issued within 12 months of the breach, paid within 28 days |
| Compliance notice | Written notice requiring the employer to fix a breach, usually to calculate and pay an underpayment and show evidence | Sets its own deadline (for example payment within 14 days); complying ends civil proceedings for those breaches |
| Enforceable undertaking | Written agreement used instead of court where the employer will fix the breaches voluntarily and agree to preventative measures | Full back pay plus audits, training and reporting commitments; published on the regulator’s site; 15 executed in 2025-26 |
Back pay: how to fix an underpayment
The Fair Work Ombudsman’s page I think I’ve underpaid my employee sets out the sequence it expects. Confirm which award or agreement applies and the employee’s classification. Check what was actually paid against pay slips, records and the payroll system. Work out the difference for the whole underpayment period. Talk to the employee, show the calculation, agree how the back payment will be made (in one amount or in instalments) and confirm it in writing. Then pay it, with the extra tax and super the back payment carries, and record it in the pay records.
The regulator adds two steps: find what caused the error and fix the payroll system so it does not recur, and consider self-reporting a large or long-running underpayment, which opens the door to a cooperation agreement. The page also says a business without a payroll officer “should consider getting help from an accountant or bookkeeper to calculate underpayments”. That calculation is award rate times hours across every affected pay period, routine when the timesheets and rates are already in the payroll file. Our guide to annual leave loading shows one entitlement often missed this way.
Payroll audit: how a small business checks its own pay runs
A payroll audit does not need an auditor. It is a structured comparison, for a sample of employees and pay periods, of the award rate that applied, the hours actually worked, and what the pay slip shows. The Code names “a payroll error being identified during a quarterly business audit” as a factor in the employer’s favour, a good reason to make the check quarterly and keep a note of it: confirm each sampled employee’s classification and rate, recompute one week of pay from the timesheet, and reconcile super accrued against super paid.
Look at the structure of the pay as well. Annualised salaries need the record of hours that proves the salary still covers the overtime and penalties worked, and contractors who look like employees need the test in our contractor vs employee guide. A bookkeeper who runs the pay cycle in the client’s own Xero or MYOB file does this as part of the weekly routine described in what a bookkeeper does.
Penalty rates, allowances and award pay rates: where most underpayments start
The National Minimum Wage is $26.44 an hour or $1,004.90 a week from 1 July 2026, according to the Fair Work Ombudsman’s minimum wages page, but almost every employee in the priority sectors is on an award, and award pay rates move each July. The common failure points are penalty rates for evenings, weekends and public holidays, casual loading on the wrong base, allowances, and classifications that were right at the start and wrong a year later. Our post on hospitality penalty rates and award coverage walks through the two awards that cover most venues.
Unpaid super and the super guarantee charge
Superannuation is an entitlement for the purposes of the offence, and it has its own regulator. The ATO sets super guarantee at 12 per cent of ordinary time earnings, and its Payday Super page says that from 1 July 2026 contributions must reach the employee’s fund within seven business days of paying the employee. Late or short super attracts the super guarantee charge. See our posts on the super guarantee rate and Payday Super, and the super due dates page.
Want every pay run checked and recorded before pay day?
FreeMyCloud has provided outsourced payroll and outsourced bookkeeping to Australian businesses since 2010. A dedicated university-qualified graduate accountant based in the Philippines runs the pay cycle in your own Xero or MYOB file, keeps the time and wages records and pay slips the Fair Work Ombudsman asks for, reconciles super before the Payday Super deadline, and works alongside your accountant or BAS agent, for about 50% less than employing a bookkeeper locally. No lock-in contracts.
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Frequently asked questions
What is wage theft in Australia?
Wage theft is the common name for the federal criminal offence of intentionally underpaying an employee’s wages or entitlements, including superannuation, which has applied since 1 January 2025 under the Fair Work Act 2009. The Fair Work Ombudsman says the offence does not cover honest mistakes. Those remain underpayments that must be back-paid and can still attract civil enforcement such as a compliance notice or an enforceable undertaking, but they are not crimes.
What is the penalty for wage theft?
According to the Fair Work Ombudsman’s criminal prosecution page as at 31 October 2026, a convicted company faces a maximum fine of the higher of three times the underpayment or $9.1 million. An individual faces up to 10 years in prison, a fine of the higher of three times the underpayment or $1.82 million, or both. Only the Commonwealth Director of Public Prosecutions or the Australian Federal Police can bring a criminal case; the Fair Work Ombudsman investigates and refers.
How much did the Fair Work Ombudsman recover in 2025-26?
The Fair Work Ombudsman’s 29 October 2026 media release said it back-paid $453 million to more than 181,000 workers in 2025-26, about $95 million more than the year before and a 27 per cent increase. Large corporates accounted for $217.3 million of that. The regulator also received a record 31,596 anonymous reports, 23 per cent more than in 2024-25, and issued 1,392 compliance notices and 791 infringement notices during the year.
How long do employers have to keep employee records in Australia?
Seven years. The Fair Work Ombudsman’s record-keeping page says time and wages records must be kept for seven years, in English, legible, readily accessible to a Fair Work Inspector, and not altered except to correct an error. The records include pay rates, hours for casuals and overtime, leave, superannuation contributions and any written agreements about hours or leave. The ATO’s record-keeping rules for the same pay run generally require five years, so seven covers both.
Is an honest payroll mistake wage theft?
No. The Fair Work Ombudsman states that the criminal offence does not include honest mistakes, and a small business employer with fewer than 15 employees that has complied with the Voluntary Small Business Wage Compliance Code cannot be referred for criminal prosecution over an underpayment. The shortfall still has to be calculated and back-paid with any super and tax owing, the cause fixed, and the back payment recorded, and civil enforcement remains possible.
How do I report wage theft or an underpayment to the Fair Work Ombudsman?
Employees and members of the public can report a suspected workplace breach anonymously through the Fair Work Ombudsman’s online Anonymous Report tool, including in languages other than English, or call the Fair Work Infoline on 13 13 94. Employers who discover their own underpayment are encouraged by the regulator to self-report, especially where the underpayment is large or long-running, and can apply for a cooperation agreement that prevents referral for criminal prosecution.
This article is general information about Australian workplace, bookkeeping and reporting obligations, current as at 31 October 2026. It is not tax, financial or legal advice. FreeMyCloud is not a registered tax agent or BAS agent and does not prepare or lodge tax returns or activity statements. Rates, thresholds and dates change. Confirm your own position with your registered tax or BAS agent, or with the Fair Work Ombudsman on 13 13 94.
