The Federal Government believes many retail and hospitality workers would like to pick up more hours, but businesses are often reluctant because they would have to pay staff at higher rates.

Under a proposal destined for parliament, employers and employees could agree for more work to be done without overtime penalties.

Industrial Relations Minister Christian Porter said the changes would address underemployment, workplace flexibility and the reliance on casual staff.

“The reforms will give business the confidence and certainty they need to hire permanent employees rather than focusing on traditionally more flexible forms of employment,” Porter told AAP.

“For employees, it means a higher chance of securing permanent employment, with a guaranteed minimum number of hours, paid leave entitlements and, crucially, more hours of work if they want them.”

Meanwhile, bosses who deliberately underpay workers could face up to four years’ jail and $1.1 million in fines under a new criminal offence of wage theft.

The new offence will carry a maximum penalty of $5.5 million for companies but doesn’t cover one-off underpayments, inadvertent mistakes or miscalculations.

It will apply to national system employers that deliberately underpay one or more workers, with people convicted of wage theft disqualified from managing companies for five years.

Porter said the vast majority of businesses do the right thing with most underpayments not deliberate.

“But there is a small minority of unscrupulous operators who deliberately and systemically seek to underpay their staff,” he said.

The changes form part of the Morrison government’s industrial relations omnibus legislation, which will include increased funding for the Fair Work Ombudsman.

Porter flagged award simplification would also be included in the bill, which he says is focused on increasing job growth during the coronavirus recovery.

Labor and unions have signalled a looming battle on the legislation after raising serious concerns with the section about casual employment.

Opposition industrial relations spokesman Tony Burke said the plan to allow casuals more rights to convert to permanent would tip the balance in employers’ favour.

But Burke confirmed Labor would support a second piece of legislation allowing union demergers, which is aimed at breaking up the Construction, Forestry, Maritime, Mining and Energy Union.

Shadow cabinet has endorsed the draft legislation and Burke anticipates some minor changes will be made before the final product is introduced to parliament.

“At the moment there is only a three-year window where a division of an amalgamated union can vote that it wants to leave again,” he told ABC radio.

“We are open to there being some exceptional circumstances beyond that three-year period where members of a division might want to exercise that democratic right.”