The new wage theft laws, under the Closing Loopholes Acts, came into effect on 1 January 2025, heightening the consequences for businesses. While penalties, including potential criminal sanctions are now greater, many businesses are still figuring out how to stay compliant.
According to Yellow Canary’s 2025 State of Payroll Compliance Report, although many businesses express concern about the new laws, a significant proportion remain confident in their existing compliance measures.
This raises an important question: is such confidence well-founded, or is it simply complacency?
A false sense of security
At first glance, longstanding payroll systems and historical compliance records might inspire a sense of security. There is an allure in believing that a system which seems to have functioned effectively for years is inherently immune to the pitfalls of non-compliance.
However, this confidence can be nothing more than complacency—a dangerous assumption that blinds organisations to evolving risks.
Yellow Canary’s report reveals that while 7% of businesses are unconcerned about potential underpayments, a staggering 93% acknowledge compliance risks—underscoring the widespread challenges in payroll compliance.
The risks of ignorance
The penalties for wage underpayment have significantly increased. Now, employers found guilty of deliberate wage theft could face:
- Fines up to $7.825 million or three times the underpayment amount for corporations.
- Fines up to $1.565 million or three times the underpayment amount for individuals, including directors and managers.
- Up to 10 years imprisonment for serious offenses.
Unintentional underpayments do not escape scrutiny. Civil penalties for serious contraventions have risen dramatically. For corporations, penalties can now reach $4.7 million, with applicants having the option to seek three times the underpayment amount instead.
These severe consequences highlight a critical truth: failing to update payroll processes to meet current regulations can result in costs greater than the underpayment. Beyond the financial burden of remediation, organisations risk legal disputes, reputational damage, and diminished employee morale—long-term issues that can severely impact business sustainability.
A need for regular reviews
Underpayments, which often account for 1–3% of total headcount costs, can go unnoticed for years before becoming a significant financial and compliance issue.
Many businesses assume they are compliant—until an audit, employee claim, or other discovery proves otherwise. The frequency of payroll audits plays a crucial role in identifying these issues.
According to Yellow Canary’s report, organisations that conduct monthly or quarterly audits report significantly higher confidence in their payroll accuracy—54% and 55%, respectively—compared to those that only review their processes annually (42%).
Moving from complacency to proactive compliance
Even minor payroll discrepancies today can escalate into major challenges tomorrow. It is a common misconception that if no immediate issues are evident, no action is necessary. However, payroll compliance demands continuous vigilance.
Start by looking at payroll compliance not as an afterthought, but as a strategic initiative—one that is regularly reviewed, benchmarked, and optimised. Leverage automation, stay up to date on legislation, and be proactive in identifying potential gaps.
Final words
In today’s constantly evolving regulatory landscape, relying on past payroll compliance is a risky gamble. Ignoring compliance risks does not just invite unexpected financial penalties—it opens the door to legal and reputational damage that could jeopardise your organisation’s future.
The reality? You cannot fix what you do not see. Now is the time to take a closer look at your payroll practices—before someone else does and uncovers the gaps you may have overlooked.
