Fines for first time offenders will rise from £15,000 to £45,000, whereas repeat offenders will face fees rising from £20,000 to £60,000.
Landlords who knowingly rent property to illegal migrants will face similar fine hikes.
The government also announced the Home Office will consult on how to strengthen action against licensed businesses who are employing illegal workers.
Minister for immigration Robert Jenrick said the move will deter small boat crossings.
In a statement, he said: “Making it harder for illegal migrants to work and operate in the UK is vital to deterring dangerous, unnecessary small boat crossings.
“Unscrupulous landlords and employers who allow illegal working and renting enable the business model of the evil people smugglers to continue.”
More on illegal working:
The fine hikes will increase pressure on employers to ensure full compliance, according to Judit Adorjan, senior immigration consultant at immigration law specialists Migrate UK.
Speaking to HR magazine, she said: “There is already a lot of emphasis on employers being ‘immigration police’ through complex compliance: reporting, record keeping, specified dates and change in right to work checks.
“According to the Home Office, the purpose of penalties related to illegal working is to encourage employers to comply with their legal obligations.
“However, the majority of businesses are unaware of this regime and their duties as there is little publicity surrounding it.”
Kate Shoesmith, deputy CEO at the Recruitment and Employment Confederation, said there can also be confusion about which providers to use for right to work checks.
Speaking to HR magazine, she said: “Employers are now able to do right to work checks online, which is exactly what we need in this day and age.
“However, it is important to ensure you have all the appropriate checks, whether in person or online. There’s been an awful lot of conversation about digital service providers for right to work checks. The government runs a list of approved services but as an employer you aren’t legally required to use one of those.
“This can be confusing to people who are susceptible to get burned by a dodgy provider. I think it could be fairer if all providers subject to the same standards.”
However, Shoesmith emphasises that many instances of non-compliance are accidental.
"The government should support businesses who are trying to do the right things and have good intentions. The majority who fall foul have administrative errors, for example using expired passports, which is currently not allowed.
“At the end of the day, businesses are also unable to prevent someone from providing false information so we need to be clear where the liability falls when something like that happens.”
Ross Kennedy, senior client manager at Vanessa Ganguin Immigration Law, said the fines hikes are unlikely to tackle compliance problems.
Speaking to HR magazine, he said: “If checks are not being done already and an employer isn’t dissuaded by a risk of the already hefty £20,000 penalty, is £60,000 likely to do more, particularly if they consider the risk of it actually happening to be low?
“The government would be better off addressing the fall in enforcement – 911 penalties in 2022 compared with 3,089 in 2016 – and then actually collecting those penalties.
“Increasing the risk is likely to be more effective than increasing the penalty.”
Kennedy also said the reforms will not deter small boat crossings.
He added: “Despite the immigration minister linking the changes to the small boats crossings, these changes don’t directly target the smugglers or those coming illegally, so may not act as the desired deterrent.
"They could make it more difficult for those here illegally to remain and support themselves, but may have little effect on the rogue employers or landlords.”