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What is wage theft and how to prevent it?

Wage theft is more than just an ethical issue—it’s a legal and financial risk no business can afford to ignore. By definition, wage theft is when employers fail to pay an employee their full wages and entitlements. Though it may seem like a small matter, wage theft can cause more damage than most realise.

5 minutes

Posted 29/04/2025

Introduction

In Australia, wage theft could cost employees up to $1.35 billion per year, affecting up to 13% of the workforce. In today's challenging economy, every dollar counts, and many people rely on their paychecks to get by. For employees, missing even a small amount can result in financial pressure, stress, and a loss of faith in their employers.  
 
The implications for businesses are equally severe, with the possibility of heavy fines, damaged reputations, and lower employee morale in the workplace. On January 1st 2025, wage theft became a criminal offence in Australia, proof of how much it has escalated over the last few years. 

Understanding wage theft and taking steps to prevent it has never been more crucial for businesses to maintain compliance, protect their workforce and reputation for long-term success. In this article, we’ll break down what wage theft is, why it matters, and how to prevent it.  

What is wage theft? 

Wage theft happens when businesses fail to pay employees their full earnings or entitlements. While some cases of wage theft are intentional, others are caused by outdated payroll systems, miscommunication, or a lack of knowledge about workplace rules. Regardless of intent, the consequences for both businesses and employees remain severe. 
 
In Australia, employees are protected by the Fair Work Act 2009 which makes it compulsory for employers to: 

  • Pay wages fairly and fully for time that has been worked 

  • Meet minimum wage standards 

  • Classify employees correctly  
     

Let’s look at the common types of wage theft: 

  • Unpaid Overtime - Employees working extra hours without compensation. In 2023, it was found that Australian employees worked an average of 5.4 hours of unpaid overtime weekly, amounting to 281 hours annually. 
     

  • Misclassification - Incorrect classification of employees can also lead to wage theft. For example, workers are deliberately misclassified as independent contractors to avoid paying benefits or taxes. The Fair Work Ombudsman has highlighted this as a growing issue, particularly in the gig economy. 
     

  • Not Paying Minimum Wage - Failure to meet award rates or industry standards. This is especially common in low-wage sectors like hospitality and retail. 
     

  • Illegal Deductions - Deductions made without valid authorisation, for any reason, are considered illegal. For example, an employer may deduct wages to help cover a cash shortage without the employee's consent or approval by law.  
     
    Deductions are only permitted with the employee's consent, by law, court order, or Fair Work Commission order, or if they are covered by an employee's award. 
     

  • Withholding Final Pay - Postponing or not paying employees their final paycheck upon leaving a job is also another form of wage theft.  
     

  • Requiring Unpaid Work - Asking employees to complete duties before clocking in, after clocking out, or during unpaid breaks is considered wage theft because they will not get paid for their extra time. This could include setting up equipment, completing documentation, or greeting clients before working hours. 

Wage theft, regardless of its form, harms employee well-being and can cause significant legal and financial harm to businesses.

Examples of wage theft 

Wage theft is a serious offence that occurs every day across businesses, often going undetected until it is too late. High-profile cases have drawn attention to the prevalence of wage theft, but smaller-scale incidents are just as damaging once they add up. 

Here are examples of wage theft cases: 

1. KFC Lawsuits  
In 2023, two class-action lawsuits were filed against KFC by employees alleging they were denied their entitled 10-minute paid rest breaks. According to workplace law experts, the lawsuits aim to secure compensation for workers impacted since 2017. Many of them were either new in the workforce, didn’t know their rights or were too afraid to speak up.  

If successful, the legal action could result in thousands of current and former KFC employees becoming eligible for compensation, resulting in claims up to millions of dollars. 

2. Hotel Operators Penalised 
In 2024, operators of boutique hotel in Victoria were fined $104,000 for deliberately underpaying employees. Upon investigation, the Fair Work Ombudsman found that Hotel Frangos and Cafe Koukla nearly 100 employees were underpaid for more than $320,000 — they did not receive full wages, including penalty rates and overtime entitlements, for several years. 
 
Similar to the KFC lawsuit, this case demonstrates how wage theft, in any form, affects vulnerable workers who rely on every dollar earned. In attempts to cut corners, businesses only face bigger losses through fines, penalties, and damaged reputations. 

Signs an employee might be experiencing wage theft 

Recognizing the signs of wage theft is the first step toward addressing the issue. For employees, identifying pay gaps can be challenging especially if they’re unsure of their rights or afraid of resistance. For employers, staying alert and identifying red flags early can prevent wage theft and maintain trust in the workplace. 

According to HRM, full-time employees reported the highest levels of unpaid overtime, averaging over 4 hours per week in 2024. To prevent this, businesses can use tools like Workforce Management Software to track hours worked and ensure employees are paid correctly.  

Here are some signs that an employee may be experiencing wage theft: 

  • Irregular or Missing Payslips - Confusing or incomplete payslips that make it harder for employees to verify and keep track of their wages. 

  • No Payment for Overtime - Employees working extra hours and not receiving overtime pay. 

  • Incorrect or Vague Classification - Misclassification as independent contractors or vague job descriptions, to avoid paying full wages and providing benefits. 

By being alert and proactive, employers can prevent these issues before they escalate and become legal matters. 

Legal consequences of wage theft 

Wage theft laws in Australia are not to be taken lightly. Businesses that commit wage theft face serious consequences, thanks to increased scrutiny from regulators and public awareness.  
 
According to the Fair Work Act 2009, companies found guilty of underpayment may face fines of up to three times the amount underpaid, or $8.25 million. 

Beyond financial penalties, businesses also risk: 

  • Damaged Reputation - Public shaming can have long-term consequences. Woolworths, for example, was widely criticized after allegations of underpayment arose. The grocery chain allegedly underpaid 1,235 former employees over $1 million in long-service leave. 

  • Low Employee Trust and Retention - Employees who feel exploited and unprotected are less likely to stay, resulting in higher turnover, recruitment costs, and negative workplace dynamics.  
     
    ABC News reported in 2024 that Miriam, a 60-year-old retail worker, was fired after requesting payslips she hadn't received in 15 years. In the article she shares, "I just feel stupid because I didn't ask for things [like pay slips and superannuation] because I believed he was looking after me." 

How employers can prevent wage theft 

The message is loud and clear: wage theft simply isn’t worth the trouble. Preventing wage theft requires employers to be transparent, accountable and have the right systems in place.  

Here’s what businesses can do: 

  1. Clear Employment Contracts - Clearly define roles, classifications, and pay rates in employment contracts to avoid mistakes or misunderstandings. 

  1. Training for HR and Managers – Ensure relevant team members are up to date with workplace laws and best practices to avoid unintentional violations. 

  1. Regular Audits – Conduct regular payroll audits to spot errors before it becomes a legal matter. 

  1. Use Compliant Payroll Software – Modern solutions like Access Micr0pay and Definitiv automate compliance, reduce errors and ensures employees are paid correctly and on time (plus, they’re easy to use). 

With these measures in place, businesses can protect both themselves and their employees from the risks of wage theft. 

What employees can do if they suspect wage theft 

Identifying wage theft can be difficult, but speaking up about it can be much more intimidating. Wage theft not only harms individuals but also contributes to a larger structural issue in the workplace. Ignoring it once allows it to be ignored again. Employees can better protect themselves by understanding their rights and adopting the necessary precautions. 
 
Here’s what employees can do: 

  • Keep Track of Everything – This includes hours worked, pay rates, and deductions. This documentation serves as proof and is critical to resolving it in the future.  

  • Discuss Internally - Begin by raising any problems with HR or management, and if possible, resolve them internally.  

  • Seek Support or Report It - If everything else fails, employees can seek help from unions, legal organizations, or the Fair Work Ombudsman. 

Final thoughts 

In summary, wage theft is a serious issue that affects both employees and businesses, but it can be prevented. By understanding the risks and implementing best practices, employers can do right by workers, ensure compliance and protect their company’s reputation.

Want to simplify payroll and prevent wage theft?

Access Payroll Software automates compliance, reduces errors, and ensures employees are paid accurately every time. With tools tailored to businesses of all sizes, we do the heavy lifting so that you can focus on bigger, more important things.  
 
Speak to one of our specialists today to discover the best fit for your business.