SYDNEY, AAP – The peak body for unions in NSW has called on the state government to introduce legislation formally criminalising wage theft, arguing its current proposal for combating the problem isn’t tough enough.

A parliamentary inquiry into the government’s proposed legislation to tackle wage theft and payroll tax avoidance kicked off on Monday.

The proposed legislation enables NSW tax collectors to provide information to the Commonwealth Fair Work Ombudsman on possible wage underpayments by businesses.

It also creates an offence of “knowingly evading or attempting to evade tax”, increasing the penalty for serial payroll tax avoidance tenfold.

Payroll tax is paid by employers whose total wages for the financial year top $1.2 million. The legislation is currently targeted at businesses underpaying staff to keep their wage bill below the payroll tax threshold.

But Unions NSW secretary Mark Morey said payroll tax evasion and underpayment of workers were not necessarily interrelated.

He also disputed the NSW government’s submission the eradication of wage theft was primarily a Commonwealth concern, saying Revenue NSW had the tools at its disposal to uncover underpayments.

However, the agency needed more inspectors searching for wrongdoing.

Mr Morey said wage underpayments were rife across the hospitality, horticulture and manufacturing industries in NSW.

“A business could continue to pay payroll tax … but still run a scam where you underpay your workers,” Mr Morey told the inquiry.

“There is no deterrent in the system – at best there’s a contrition payment businesses make, no one is prosecuted for doing the wrong thing.”

Mr Morey said the underpayment of payroll tax or wages also harmed other businesses doing the right thing by making them uncompetitive.

Monday’s hearing comes after the federal government in March walked away from the wage theft provisions in its industrial relations package.

Federal Labor has pledged to criminalise wage theft if it wins the next election.

“What we don’t understand is where people are systematically ripping people off millions and millions of dollars and get away with a minimal contrition payment to the Fair Work Ombudsman,” Mr Morey said.

“We believe there’s a culture of ‘catch us if you can’ at the moment.”

Research by Pricewaterhouse Coopers indicates 13 per cent of Australian workers are underpaid a total of $1.35 billion each year, diverting millions from government coffers.