However, Labor has labelled their solution a "toothless tiger", saying there aren't enough inspectors searching for wrongdoing for the policy to have any impact.

Higher penalties will apply to those who fudge their records or lie to inspectors, but they are specifically targeted at businesses underpaying staff to keep their wage bill below the payroll tax threshold.

Wage theft didn't just exploit workers, NSW Minister for Finance and Small Business Damien Tudehope said as he announced the plan, but robbed taxpayers and leaves competitors who did the right thing at a disadvantage.

"The new legislation, including harsher penalties and naming taxpayers who have underpaid payroll tax on wages, sends a clear message to businesses - do the right thing by your employees and by the taxpayers of NSW," he said.

The bill will also allow Revenue NSW to disclose information to the Commonwealth Fair Work Ombudsman to advance investigations.

Failure to keep appropriate records will now cost business up to $27,500, while those wilfully damaging or destroying records will be fined up to $55,000.

Creating false records and lying to tax officers now incur penalties of up to $55,000 or $110,000 if it's a repeat offence.

Payroll tax is paid by employers whose total wages for the financial year top $1.2 million.

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.

Mr Tudehope took a stab at his federal counterparts, calling for co-operation to establish a national framework for combating wage theft.

"The NSW government will continue to work with the Commonwealth in this area as the Commonwealth is primarily responsible for legislating on industrial relations including dealing with wage theft," he said.

"The Commonwealth government has shown leadership in this space but now this needs to come back onto the national agenda."

However, NSW Labor said the state government wasn't doing its bit either.

It said the plan was an empty promise because it didn't come with the inspectors needed to catch businesses rorting the system.

"Damien Tudehope has effectively announced a toothless tiger," finance spokesman Daniel Mookhey said.

"There aren't even enough inspectors to deal with existing payroll tax evasion, let alone enough to crack down on the wage theft epidemic."

Australian Associated Press