On 1 January 2025, the Fair Work Act 2009 (Cth) will be varied to make it a criminal offence to intentionally underpay an employee (Wage Theft Offence). There will also be increased civil penalties for employers who are found to have inadvertently underpaid an employee.
The introduction of the Wage Theft Offence will be one of the last, but certainly not the least, of the significant changes to Australia’s employment laws under the landmark Closing Loopholes legislation which was passed by Parliament late last year.
In this Insight, we explain the elements of the Wage Theft Offence, the consequences for non-compliance, and the steps that employers should take to mitigate the risk of underpayments occurring in their workplace.
What is the offence?
The four elements of the Wage Theft Offence will be outlined in a new section 327A of the Fair Work Act. These elements are:
1. the employer is required to pay an amount to, on behalf of, or for the benefit of, an employee under the Fair Work Act, a fair work instrument, or a transitional instrument;
2. the required amount is not an “excluded amount” (as defined in the Fair Work Act);
3. the employer engages in conduct; and
4. the conduct 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.
In relation to the first two elements, these will be “strict liability” provisions, meaning that questions of the employer’s intention will be irrelevant. The only question to be answered is whether at law, the allegedly underpaid amount was required to be paid to the employee or not. The list of “excluded amounts” is short and includes superannuation contributions, certain long service leave payments, and payments in respect of jury duty leave.
In relation to the final two elements, the employer’s intention will be the primary consideration. If there is no intention to underpay, the employer will not have committed the Wage Theft Offence.
Under section 5.2 of the Criminal Code Act 1995 (Cth), an individual has “intention” with respect to:
1. conduct if the individual means to engage in that conduct;
2. a circumstance if the individual believes that it exists or will exist; or
3. a result if the individual means to bring it about or is aware that it will occur in the ordinary course of events.
Where the employer is a body corporate, the employer’s “intention” will depend on whether the employer expressly, tacitly, or impliedly authorised or permitted the commission of the relevant offence. The employer’s “intention” may be established by:
1. proving that the employer’s board of directors or a high managerial agent of the employer intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence;
2. proving that a corporate culture existed within the employer that directed, encouraged, tolerated or led to the commission of the offence; or
3. proving that the employer failed to create and maintain a corporate culture that required compliance with the relevant provisions.
What are the penalties?
The penalties differ depending on whether the employer is a body corporate or an individual.
If a body corporate is found to have committed the Wage Theft Offence, a fine may be imposed equal to the greater of $8,250,000, or three times the amount of the underpayment. If an individual is found to have committed the Wage Theft Offence, they could be sentenced to up to 10 years’ imprisonment, or a fine may be imposed equal to the greater of $1,650,000, or three times the amount of the underpayment.
There will also be increased civil penalties where an employer is found to have underpaid its employees but where the employer’s conduct does not meet the elements of the Wage Theft Offence – in other words, where it cannot be established that the employer intended to underpay its employees.
The maximum civil penalties for a body corporate (other than a small-business employer) will be $495,000 per contravention and $99,000 for an individual, or three times the amount of the underpayment, whichever is greater. Where the contravention amounts to a “serious contravention” under the Fair Work Act, the maximum penalties increase to $4,950,000 per contravention for a body corporate (other than a small-business employer) and $990,000 for an individual, or three times the amount of the underpayment.
The Fair Work Ombudsman will be able to refer matters involving the potential commission of the Wage Theft Offence to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for criminal investigation.
What are the avenues for self-reporting?
There will be two avenues through which employers may self-report conduct amounting to the commission of the Wage Theft Offence to the FWO.
Firstly, for small-business employers, a Voluntary Small Business Wage Compliance Code will be developed, and compliance with the Code will ensure that the FWO will not refer the employer for criminal prosecution.
Secondly, an employer may self-report to the FWO and the FWO can enter into a cooperation agreement with the employer, which would preclude the FWO from referring the employer for criminal prosecution.
Importantly, self-reporting will not shield employers from civil recovery and penalty actions by the FWO.
What should employers do?
Employers must ensure that their HR and payroll processes and their remuneration arrangements are in order to mitigate the risk of underpayments occurring in their workplace.
As a matter of priority, employers should consider whether it is necessary to conduct a payroll audit to test whether their employees are correctly classified under the applicable industrial instruments, that their payroll rules comply with the terms of those instruments, and most importantly, that their employees are being paid their minimum entitlements under those instruments based on their actual hours of work. These audits should be managed through lawyers so that legal professional privilege is maintained in respect of the findings.
Employers should also take steps to ensure that their record-keeping processes are working accurately and effectively, and that their senior management, HR and payroll staff are aware (including through appropriate training) of the importance of avoiding underpayments and the measures that should be implemented to mitigate this risk.
If you become aware of actual or potential underpayments, you should promptly seek legal advice to determine the appropriate rectification plan to be followed and the corrective and preventative measures to be put in place going forward.