With the new criminalisation of wage theft set to take effect in 2025, Australian businesses are racing against the clock to ensure they comply with the new legislation. For those still lagging behind, the risks are immense – from hefty penalties to reputational damage and the erosion of employee trust. To get a clearer picture of what this shift means for businesses and how they can prepare, People Matters sat down with Matt Loop, Vice President and Head of Asia at Rippling, a leader in automating HR and payroll systems.

Is Australia Ready for the New Wage Theft Legislation?

With just over a month to go before the criminalisation of wage theft officially kicks in on January 1, 2025, Matt Loop doesn't mince words when discussing how ready Australian businesses are for the change. "If you look at the state of businesses today, I’d say most are far from being prepared," he says. "Our research earlier this year found that nearly 60% of Australian companies had payroll errors in the past two years. And that's not just theoretical errors – many businesses are facing mounting scrutiny and fines over underpayment."

The new laws, introduced as part of the Closing Loopholes reforms, make it clear that intentional underpayments will be treated as a criminal offence under the Fair Work Act. While the legislation focuses on deliberate wage theft, even accidental errors such as missed or delayed payments can harm employee trust and invite unwanted scrutiny.

"The main issue is outdated payroll processes and fragmented systems. These manual systems increase the likelihood of errors and non-compliance, which only intensifies the risk of investigations and penalties,” says Loop. “To avoid penalties and reputational damage, businesses must act swiftly.”

Why Are Payroll Errors So Common?

The statistic that nearly 60% of companies have faced payroll errors highlights a critical issue within Australian businesses: outdated and inefficient processes. "There’s no shortage of contributing factors," explains Loop. "Most notably, many companies still rely on manual data entry, and we found that 63% juggle multiple tools to handle HR and payroll. This leads to a disjointed workflow that only increases the risk of error."

Even with the complexities of modern payroll requirements, businesses are often stuck in the past. “Technology, especially automated payroll systems, is an essential part of mitigating these risks,” says Loop. “Businesses that don’t modernise will face increasing challenges as the legislative landscape shifts.”

The new law doesn’t just target non-compliance — it has real teeth. Criminal penalties await businesses that intentionally underpay employees, and the burden of proof lies on the employer. “It’s not enough to say it was an honest mistake anymore,” Loop warns. “Companies will have to prove that their processes were up to standard, and that’s going to be difficult if the systems are outdated.”

Building a Culture of Accountability

How can business leaders ensure their company avoids both the legal and reputational fallout from wage theft? According to Loop, it starts with creating a company-wide culture of accountability. “Payroll accuracy shouldn’t be an afterthought. It needs to be a top priority,” says Matt Loop. “Leaders must set the tone by making payroll a part of the overall business operations, not just a back-office function.”

Loop explains that businesses need to build systems that provide transparency and allow for quick identification of any errors. A key step toward this goal is ensuring that both HR and finance teams work in unison. “Many companies operate in silos, and payroll becomes a bottleneck because the teams aren’t talking to each other. By consolidating HR and payroll systems into one unified platform, businesses can eliminate errors and stay ahead of compliance issues.”

“Leaders should constantly review processes, hold their teams accountable, and proactively address any discrepancies. A culture of transparency and accountability isn’t just about avoiding penalties – it’s about creating trust with employees. When employees know they’re being paid accurately and on time, it fosters loyalty and strengthens the company’s reputation.”

The Technology Roadblock

As the criminalisation of wage theft approaches, technology could be the key to compliance. However, Loop points out that many businesses still resist upgrading outdated systems. “A major hurdle is inertia. Many businesses are reluctant to change, worrying about the cost or disruption,” says Loop. “But, with the stakes this high, it’s no longer a matter of if they should modernise — it’s a matter of when.”

Businesses that continue to rely on manual processes are not only risking non-compliance but are also losing valuable time and resources. “The reality is that manual processes are costing businesses much more than they realise. They waste time, create room for errors, and ultimately threaten the bottom line.”

According to Loop, cloud-based platforms and automated systems can provide a real-time solution to compliance challenges. “Automated payroll systems offer both real-time updates and scalability. For growing businesses, this is an investment in efficiency, accuracy, and long-term compliance. It’s not just about avoiding fines; it’s about being ahead of the curve.”

The Final Countdown: Preparing for 2025

Loop's key advice to Australian businesses in the final months of 2024: "Don’t wait until January. Start now," he urges. “Audit your payroll systems, identify potential gaps, and make the necessary updates. Don’t think of payroll as a back-office task anymore. It’s front and centre in business operations.”

Loop highlights that businesses should assess where manual workflows or disconnected systems are in place and replace them with integrated, automated solutions. “A comprehensive audit is essential. And, while many businesses may see payroll as a cost centre, it’s an investment that will pay off in the long run. Protecting employees' rights and ensuring timely, accurate payment is a fundamental part of maintaining operational integrity.”

The Voluntary Small Business Wage Compliance Code

For small businesses, the introduction of the Voluntary Small Business Wage Compliance Code (the Code) could be a crucial tool in navigating the changes ahead. On December 16, 2024, the Code was officially lodged on the Federal Register of Legislation, marking a key milestone for small businesses preparing for the new wage theft criminal offence set to take effect on January 1, 2025.

The Code provides a framework for small businesses to manage wage compliance without the fear of criminal prosecution. “The Small Business Code is a welcome development,” says Loop. “Small businesses face unique challenges when it comes to compliance, so having a dedicated tool that allows them to self-assess and demonstrate good faith efforts can help reduce the risk of being prosecuted.”

However, the Code is not without its critics. Some argue that the introduction of the Small Business Code could undermine the law’s core objective: ensuring compliance across all businesses, big or small. Still, for small business owners, the Code offers a measure of relief and a chance to demonstrate their commitment to complying with the new legislation.

Is Your Business Ready?

As the criminalisation of wage theft looms, Australian businesses must act fast to ensure they’re fully prepared for the new legal landscape. The risks of non-compliance are clear: from severe fines and reputational damage to loss of employee trust. By modernising payroll systems, creating a culture of accountability, and staying ahead of legislative changes, businesses can avoid the pitfalls of wage theft.

Loop's advice is clear: don’t wait until January. “Take immediate action. Start by auditing your current payroll processes and identify areas where errors could occur,” he says. “This is an opportunity to future-proof your business, build employee trust, and ensure your compliance as we enter this new era of wage theft laws.”

As businesses continue to navigate this evolving landscape, those that embrace change and take proactive steps toward compliance will be in the best position to succeed. Whether it’s implementing automated payroll systems or leveraging the Voluntary Small Business Wage Compliance Code, Australian businesses have the tools they need to stay ahead and safeguard their future.