Closing the Loophole: Key changes effective 1 January 2025 & what they mean for you

The Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024 has introduced a variety of changes over its life span, with additional changes to come on 1 January 2025. These changes have substantial implications for businesses across various industries. It’s vital for employers to stay abreast of these changes and understand how they may affect their businesses.

In this article, we provide an overview of the upcoming changes and by understanding these updates, businesses can better prepare for the transition and implementation and to ensure compliance with the new legal requirements.

From 1 January 2025, employers found intentionally underpaying an employee’s wages or entitlements may be criminally liable. 

Specifically, a criminal offence will have been committed when an employer:

• Was required to pay an amount to an employee such as wages or paid leave entitlements;
• On the employee’s behalf or benefit; and
• They have intentionally done something that results in the amounts not being paid when they are due.

It is important to note this does not extend to situations where businesses have made an honest mistake or any of the exceptions laid out in the new rules.

From 1 Jan 2025, the civil penalties businesses may face for wage underpayments will also increase. Under the new laws the maximum penalty can be increased to the greater of either 3 times the value of the underpayment or the relevant penalty unit amount for the contravention. In instances where the Fair Work Ombudsman (FWO) deem an act as a ‘serious contravention’, the maximum penalty for non-compliance with a compliance notice may be doubled and the maximum penalty for a ‘selected civil remedy contravention’ by businesses with 15 or more employees may be increased by up to 5-fold.

The scope for an offence being considered a ‘serious contravention’ has also been widened. Previously an offence was considered a ‘serious contravention’ where:

• A business or person were aware they were contravening an obligation under workplace laws; and
• The contravention was part of a systematic pattern of conduct affecting one or more people.

Under the new laws an offence will be considered a ‘serious contravention’ where there has been a ‘knowing or reckless’ contravention, rather than ‘knowing and systematic’.

Finally, these new laws also clarify how compliance notices operate. Compliance notices now require businesses to calculate the underpayment they owe to employees and pay the owed amount.

Under these new provisions the FWO can investigate suspected criminal underpayment offences and refer any relevant matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police. Where an employer is convicted of a criminal offence they may face fines, jail time or both. Both individuals and companies can be held criminally liable for underpayment offences. As well as employers, other individuals or companies can also be prosecuted for their conduct relating to an offence, such as aiding an employer in committing the offence.

To help protect small businesses from criminal liability and equip them to navigate these changes, the FWO have published the Voluntary Small Business Wage Compliance Code (Code). This sets out steps that many businesses already follow as part of good businesses practices, for example taking reasonable steps to work out correct pay rates or seeking advice on paying employees correctly. Employers of small businesses that are found to have underpaid an employee but have complied with the Code will not be criminally prosecuted.

The FWO will also provide an avenue for navigating these provisions that is relevant to both small businesses and large businesses (15 employees or more). Employers who contravene these new provisions and voluntarily communicate this to the FWO will have the option to engage in a cooperation agreement with the FWO. This means employers will not be referred to criminal prosecution for their conduct.

Traditionally it has not been mandatory for small businesses to pay redundancy pay to redundant employees. Historically, large businesses downsizing to become small businesses on account of issues like insolvency have also not been required to pay redundancy pay after the business has fewer than 15 employees left. The new provisions provide that in these circumstances when large businesses downsize to become a small business, they may still be liable to pay employees redundancy pay. These changes mean that employers undergoing liquidation or bankruptcy proceedings should consult the Fair Work Ombudsman to determine if they meet the criteria and are required to pay out redundant employees.

More changes will be implemented between 1 Jan 2025 and 26 August 2025. These will include changes to the enterprise agreement model terms around flexibility, consultation and dispute resolution, as well as the right to disconnect coming into effect for small business employers from August 2025.

These new provisions will require employers to carefully consider how their businesses may be affected and if any changes are necessary to ensure they remain compliant. The changes to wage underpayment serve to have the biggest impact on employers, broadening the scope of the FWO to consider, investigate and penalise businesses for the underpayment of wages. These changes however, are also accompanied by a body of tools and resources to avoid these pitfalls and ensure compliance.

If you would like to know more about the changes taking effect on 1 January 2025, please contact us and a Mapien Workplace Strategist will be in touch within 24 hours.