From 1 January 2025, intentional underpayment of wages or entitlements can be a criminal offence. Additionally, the civil penalties for underpayments have increased.
The new wage theft laws are part of a raft of changes introduced under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) and the Fair Work Legislation Amendment (Closing Loopholes) Act 2024 (Cth).
What is Wage Theft?
Under the new section 327A of the Fair Work Act 2009 (Cth) (FW Act), an employer commits an offence if it engages in intentional conduct that results in wage theft where the employer fails to pay the ‘required amount’ to an employee in full, on or before the date that the required amount is due to be paid.
The ‘required amount’ includes wages, allowances, superannuation contributions, and leave entitlements owed to the employee.
Application of the Criminal Offences
The new wage theft laws empower the Fair Work Ombudsman (FWO) to refer businesses engaging in wage theft to the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP) for consideration and prosecution where appropriate. The CDPP or the AFP will then determine whether criminal proceedings should be commenced against the offending business, and such prosecutions must be commenced within six years following the commission of the offence.
Fortunately, underpayments due to an accident or a genuine mistake are not captured by the ambit of section 327A. However, where an employer relies on defences of mistake and ignorance of fact, they will bear the onus of proof, which could be a significant burden to discharge.
Additionally, where an employer discovers an underpayment but fails to take steps to remedy the underpayment within a reasonable period of time, or as required by the FWO, the employer risks being in breach of the criminal offence provisions.
What about Small Businesses?
Small businesses (i.e., businesses with fewer than 15 employees) will face challenges adhering to the new wage theft laws owing to a possible lack of resources to implement complex payroll systems and other processes to ensure compliance.
However, the Voluntary Small Business Wage Compliance Code Declaration 2024 (Code) will provide small businesses with some protections from criminal charges, provided they can demonstrate they did not intentionally underpay their employees. You can find the Code here.
Where the FWO is satisfied that a small business did not intentionally engage in wage theft, it cannot refer a small business for criminal prosecution to the CDPP or the AFP, provided that the small business in question can satisfy the FWO that it has complied with the Code.
It is important to note that the Code is not a checklist, which means that a small business does not need to show that it meets all the factors. No one factor must be met for a small business to have complied with the Code. The FWO has provided the following table as an example of how to apply the factors in the code:
| Factors | Example |
| Taken reasonable steps to work out correct pay rates and entitlements | This may include checking the relevant award or enterprise agreement or confirming that the National Minimum Wage Order applies. |
| Made reasonable effort to stay up to date with changes to their obligations, including workplace laws. | This may include subscribing to the FWO’s email updates to stay up to date on changes to any relevant awards including pay rate increases. |
| Checked and relied on employee information the employer reasonably believed was accurate in relation to paying wages. | This may include relying on accurate information about the employee when checking they’ve been classified correctly based on their role and duties, or that they’re being paid correctly for their age. |
| Sought information or advice from a reliable source about paying employee entitlements correctly. | This may include seeking advice from an employer association, lawyer, the FWO, or the Fair Work Commission. |
| Provided information when seeking information or advice that the employment reasonably believed was accurate. | This may include seeking advice or information from a reliable source, making sure to give that source the correct information about an employee like their classification and age. |
| Taken steps to fix the underpayment. | This may include repaying an amount as soon as possible and taking steps to prevent the same issue from happening again. |
| Cooperating with any inquiry or investigation that the FWO conducts about the underpayment. | This may include responding to all calls and emails and engaging with the FWO through the inquiry or investigation as needed. |
| Other factors that might be relevant, such as what led to the underpayment or how the employer became aware of the underpayment. | A payroll error being identified during a quarterly business audit. |
What are the Penalties for Wage Theft?
The penalties associated with wage theft are significant and are as follows:
- for a company, a maximum penalty of $7.825 million or 3 times the amount of the underpayment, whichever is greater; and
- for an individual, a maximum of 10 years in prison and a maximum penalty of $1.565 million or 3 times the amount of the underpayment, whichever is greater.
A point to note is that the new law does not apply retrospectively, meaning that section 327A will only apply to conduct after it comes into effect. However, employers are still liable under the civil penalty regime of section 539 of the FW Act for underpayments occurring before 1 January 2025.
Action items for Employers
Employers must proactively review their existing practices and payroll processes to ensure compliance with the new laws.
Some steps employers can take include:
- Conduct regular audits involving a periodical review of payroll systems and employee records to ensure accuracy and compliance;
- Implement training for management and payroll staff to educate them on these new legal requirements;
- Establish compliance frameworks by developing and maintaining policies and procedures that promote compliance with wage theft legislation and promptly address any discrepancies;
- Stay up to date with workplace laws; and
- Immediately seek legal advice if your business is concerned about any potential breaches of the wage theft laws.
At WilliamsonBarwick, we have developed a compliance risk management assessment called Paylex, which can be tailored to your organisation’s needs. You can find out more about it by visiting our website: Paylex – The Premium Employment Practices Compliance Report – WilliamsonBarwick
Please contact WilliamsonBarwick if you need any assistance in navigating the Wage Theft laws. We are happy to help.
