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Wage Theft Becomes a Crime: What Employers Need to Know

Monday January 13, 2025

Wage Theft Becomes a Crime: What Employers Need to Know

On 1 January 2025, a significant change to Australian employment law came into effect: the criminalisation of underpayment, also known as wage theft. This reform is part of the Fair Work Legislation Amendment (Closing Loopholes Number 2) Act 2024 (Act).

Employers need to be aware of these changes, as failure to comply could have serious consequences.

What is Wage Theft?

Wage theft is not a new issue in the industrial relations landscape. Historically, it has involved situations where an employer has failed to pay an employee their wages in full or in part. This can also extend to superannuation, meal breaks, overtime, and failure to meet minimum wage requirements.

Wage theft can be intentional, but it can also occur unintentionally, due to mistakes, carelessness, or negligence.

Provisions addressing wage theft and remedies for recovery have been subject to numerous jurisdictional laws and have been included in the underpayment clauses of Enterprise Agreements.

The new legislative amendments in Section 327A of the Fair Work Act 2009 (Cth) make it a criminal offence for an employer to engage in intentional conduct that results in the underpayment of a "required amount" to an employee. The "required amount" includes wages and superannuation, and the employee must be entitled to be paid this amount under the Act, a fair work instrument, or a transitional instrument.

When Do These Changes Apply?

The new provisions came into effect on 1 January 2025.

What Are the Powers of Prosecution and Penalties?

Under the new changes, the Fair Work Ombudsman (FWO) can investigate possible wage theft offences. However, prosecutions will be handled by the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP).

Prosecutions can be initiated within 6 years of the alleged wage theft.

Penalties for Wage Theft

The penalties for employers found guilty of wage theft are severe:

  • Up to 10 years' imprisonment for individuals
  • Fines up to $1.65 million for individuals, or $8.25 million for companies
  • Alternatively, the penalty could be three times the amount of the underpayment if this can be calculated.

Do All Underpayment Cases Lead to Prosecution?

The short answer is no, as there is a “get out of jail card” available to employers (see Section 327B of the Fair Work Act 2009 (Cth)). The changes do not apply to situations involving an honest mistake, as the focus is on intentional conduct. Additionally, the legislative changes introduce the concept of a ‘cooperation agreement’, which acts as a ‘safe harbour’ against prosecution, preventing future legal action.

This process involves an employer self-reporting the underpayment and entering into a cooperation agreement with the FWO. It is important to note that while the cooperation agreement is in effect, the FWO is prohibited from referring the matter for prosecution.

The Voluntary Small Business Wage Compliance Code

Section 327B also introduces the Voluntary Small Business Wage Compliance Code (the Code).

If the FWO determines that a small business has complied with the Code in relation to an underpayment, it must not refer the employer’s conduct to the CDPP or the AFP for potential criminal prosecution.

The FWO is required to provide the employer with written notice of this decision.

A small business will have complied with the Code if it did not intend to underpay its employees, based on the factors outlined in the Code.

What Should Employers Do? Handy Hints

To ensure compliance with these new laws, employers should:

  • Conduct a workplace audit of pay rates, classification, and compliance with Awards and Enterprise Agreements
  • Review employment contracts and position descriptions to ensure they are in line with the relevant Award
  • Audit your payroll system to confirm that correct rates are being applied
  • Update payroll software or systems, if necessary, to ensure accuracy.

Take Action Today

To ensure your business is compliant with the new laws, take proactive steps today. Conduct a thorough audit of your payroll systems, employment contracts, and classification descriptors. If you're uncertain about your obligations or need guidance, our team is here to help.

Contact us now to safeguard your business and stay ahead of these changes.

Disclaimer: The content provided in this publication is intended for general informational purposes only and should not be construed as tailored advice to address specific individual or organisational circumstances. While we strive to offer accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or its continued accuracy in the future. Readers are encouraged to seek professional advice or consult relevant authorities regarding their unique situations.


Author:
Jim Babalis