Understanding the Criminalisation of Wage Theft: The New Framework

A key aspect of the Amendment (Closing Loopholes) Act 2023 is the criminalisation of ‘wage theft’. Wage theft typically refers to employers intentionally underpaying their employees or deliberately failing to provide them with the wages and entitlements they are owed. Previously, underpayments of employees were subject to civil penalties under the Fair Work Act 2009 (Cth) (“Fair Work Act”), but starting from 1 January 2025, intentional underpayment of wages will now be considered a criminal offence.

This is a major shake up to workplace laws and serves as an important reminder for businesses to ensure that their payroll management and administration is accurate and effective. Failure to properly pay employees their wages and entitlements is now a serious issue.

In this article we will discuss the changes to workplace laws, what this means for companies and what businesses can do to protect themselves.

Understanding the Legal Framework

Section 327A of the Fair Work Act sets out the 4 different elements for committing an offence for failing to pay employees being:

1. The employer is required to pay an amount to, on behalf of, or for the benefit of an employee under any of:
   1. the Fair Work Act;
   2. a fair work instrument;
   3. a transitional instrument;
2. the required amount is not covered by section 327A(2) of the Fair Work Act;
3. the employer engages in conduct (as defined under the Fair Work Act)
4. the conduct (as defined under the Fair Work Act) results in a failure to pay the required amount to, on behalf of, or for the benefit of the employee in full on or before the day when the required amount is due for payment.

To establish the offence, it is necessary to demonstrate that the employer intentionally engaged in the conduct. Underpayments resulting from accidents, unintentional actions, or genuine mistakes are generally not encompassed by this legislation.

Punishments

Individuals and Corporations found guilty of violating s327A of the Fair Work Act may be subject to severe penalties.

For Individuals, the maximum penalty any one or more of a Court imposed fine (which will be the greater of 3x the value of the underpayment or $1.5 million dollars) and/or 10 years imprisonment.

For Corporations, the maximum penalty a court may impose is the greater of 3x the value of the underpayment or $7.8 million.

Protecting your business

Businesses that contravene wage theft laws may be able to mitigate against and prevent criminal prosecution depending on the size of the business and the details concerning the contravention.

Small businesses (being those businesses with less than 15 employees) will likely be exempt from criminal prosecution in circumstances where the Fair Work Ombudsman is satisfied that they’ve complied with the Voluntary Small Business Wage Compliance Code ("the Wage Compliance Code").

To comply with the Wage Compliance Code, a small business owner will need to establish that they did not intend to underpay an employee. Whether a small businesses underpayment was intentional or not will be determined by a range of factors including but not limited to whether the employer

• took reasonable steps to calculate an employees correct rate of pay and entitlements;
• made reasonable efforts to keep apprised and stay up to date with developments and changes to an employers obligations under workplace laws;
• sought information from a reliable source about paying employee entitlements correctly; and
• took measures to rectify underpayments.

For small and large businesses (those with 15 or more employees) who discover wage theft within their business, these entities may consider self-reporting this behaviour to the Fair Work Ombudsman. It is possible that after self-reporting, the FWO may enter a ‘cooperation agreement’ with the employer and forgo referring the matter for criminal prosecution. However, whether the FWO refers the misconduct for criminal prosecution will be based on how ‘voluntary, frank and complete’ the disclosure of the misconduct is by the employer.

Businesses should also recognise that although these measures may safeguard against or reduce criminal liability, they do not preclude the imposition of civil penalties and non-punitive actions by the Fair Work Ombudsman.

What should businesses do?

Employers must remain vigilant regarding any potential or actual underpayments to their staff. It is essential for businesses to routinely examine the modern awards or enterprise agreements applicable to their operations to confirm that employees are accurately classified and receiving their rightful entitlements. This process should involve the employer conducting an audit of their payroll and rostering systems to ensure employees are properly compensated for all minimum entitlements, such as leave and overtime.

Businesses should establish systems and implement procedures to ensure that any modifications to modern awards or enterprise agreements are incorporated into their payroll systems. This should involve educating managers and other key stakeholders on how to oversee and update payroll systems, emphasising the importance of promptly informing the employer of any underpayments or failures to pay entitlements. Employers should highlight the repercussions of not adhering to the new legislation and provide managers and key stakeholders with suitable internal channels to report potential non-compliance.

For small businesses, it is important that you read and become extremely familiar with the Small Business Code. Employers should also consider adopting the small business code and if you do adopt it, make sure that the key stakeholders within your organisation understand the small business code and why it is important.

Ultimately, if you as an employer believes that you may have engaged in behaviour that constitutes wage theft, we recommend you seek legal advice to understand how to best resolve your issue.

Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.