Wage theft involves underpaying an employee’s rightful wages and other entitlements. It robs workers of their income and undermines the fundamental principles of fair work. In response to these issues, the Commonwealth government has introduced laws to criminalise the intentional theft of wages and other entitlements and empower regulatory bodies to investigate employers engaging in such practices.
This article outlines the framework for wage theft laws under the Fair Work Act 2009 (FWA), the implications for employers, and suggestions on how they can manage risk. The information is general only and does not constitute legal advice. If you need legal assistance, seek professional advice tailored to your circumstances.
Wage Theft as an Offence under the Fair Work Act
Employers (individuals or companies) who intentionally underpay their staff can now face criminal penalties. The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduces the criminal offence of wage theft into the FWA as of 1 January 2025.
Under section 327A an employer commits an offence if it engages in intentional conduct resulting in the underpayment of a ‘required amount’ to, on behalf of, or for the benefit of an employee in full, on or before it is due. ‘Required amounts’ can include wages and other entitlements such as leave entitlements and superannuation contributions under the FWA or an industrial instrument.
The criminal offence provisions do not apply for certain entitlements for some employees (superannuation contributions, long service leave and other leave payments associated with jury duty and being the victim of a crime), however, they will still apply for wages and other entitlements.
Intentional conduct includes taking an action or failing to take an action, for example, purposely paying less than an employee’s minimum entitlements (paying under the correct hourly rate) or deliberately not paying an employee.
Unintentional underpayments and honest mistakes are excluded. To prove wage theft, the fault element of intention applies – it must be proven beyond a reasonable doubt that the employer intentionally engaged in the conduct complained of and intended for the conduct to result in a failure to make a required payment in full, on or before it was due.
Enforcement and Penalties
The Fair Work Ombudsman (FWO) can investigate alleged wage theft offences and refer employers for criminal prosecution. Employers found to have intentionally underpaid their employees face severe penalties.
Penalties for convictions of serious offences of wage theft carry a maximum of 10 years’ imprisonment and/or a fine. Fines are:
- for an individual, the greater of three times the amount of the underpayment if it can be determined or 5,000 penalty units
- for a corporate body, the greater of three times the amount of the underpayment if it can be determined or 25,000 penalty units
Self-Reporting and Safe Haven
Reforms encourage employers to disclose conduct that could amount to wage theft. The Voluntary Small Business Wage Compliance Code provides a framework that employers can utilise to help identify and rectify the unintentional underpayment of wages and entitlements.
The conduct of a small business (generally, a business with fewer than 15 employees) may not be referred for criminal prosecution if the FWO is satisfied that the business has complied with the Voluntary Small Business Wage Compliance Code regarding an underpayment. Generally, a small business employer will comply if it did not intend to underpay its employee/s, which conduct will be assessed in consideration of several factors.
The FWO may also enter into a written cooperation agreement with other employers who disclose they have engaged in conduct that may amount to a wage theft offence. After assessing various factors, the FWO may agree not to refer the conduct for prosecution.
While complying with the Voluntary Small Business Wage Compliance Code or entering into a cooperation agreement can prevent the FWO from referring an employer for criminal prosecution, other enforcement action such as issuing a compliance notice or commencing civil litigation may still be pursued.
Preventing Wage Theft – Employer’s Checklist
Preventing wage theft requires a proactive and diligent approach from employers. Key strategies include:
- Understanding the law: Compliance and risk management starts with understanding the relevant laws and regulations. Employers should ensure they are familiar with wage theft laws and educate HR and other key personnel on the implications of an offence.
- Robust payroll systems: Implementing robust payroll systems and record-keeping practices is essential for the accurate and timely payment of wages. Employers may consider investing in appropriate software to assist with compliance.
- Regular training: Providing regular training to managers and payroll staff on wage and entitlement obligations is crucial for preventing inadvertent underpayment. Training should cover relevant legislation, awards, and company policies.
- Internal audits: Conducting regular internal audits can help identify and rectify any payroll errors or compliance gaps and prevent underpayment issues from escalating. Regularly check awards and enterprise agreements to ensure employees are correctly classified and receive correct remuneration including penalty rates for overtime.
- Seek expert advice: Employers should seek guidance from the FWO or industry bodies to ensure they understand their obligations under the FWA and any relevant awards or agreements. Seeking legal advice from experienced professionals can help employers stay abreast of their obligations and implement policies and systems for compliance.
Conclusion
Wage theft covers a range of circumstances where full employee entitlements have not been met, for example, not being paid the minimum hourly rate of pay, withholding leave entitlements, or failing to make compulsory superannuation contributions. Rather than punish employers who have inadvertently made an error or oversight in calculating or paying employee entitlements, wage theft laws target intentional conduct to deliberately deprive workers of their full entitlements.
Employers should conduct regular checks to ensure compliance with relevant awards, industrial instruments, and employment contracts or seek professional advice if they are uncertain of their obligations or need assistance with compliance.
If you or someone you know wants more information or needs help or advice, please call (03) 9600 2768 or email [email protected].