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Overview of new Wage theft laws
Wage theft – the underpaying or withholding of wages and entitlements to workers in an organisation – continues to be a persistent problem in Australia’s corporate sector. The knock-on effects of wage theft can be devastating; individuals who are left out of pocket, are unable to take on the often-powerful legal muscle of their employers. And with widespread reporting of wage theft now commonplace, guilty organisations, trying to rebuild their reputations, are losing customers and profits.
Wage theft is already illegal in Victoria and Queensland. Now the federal government has introduced legislation that makes intentional wage theft and non-payment of worker entitlements a criminal offence from 1 January 2025.
Under the new wage theft laws, employers will have committed an offence if:
- They are required to pay an amount to an employee, such as wages, or on behalf of or for the benefit of an employee, such as superannuation, under the Fair Work Act or an industrial instrument; and
- They intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.
The [legislation] recognises the serious harm that Australian workers, especially young people, women and migrants, can experience because of intentional underpayment.
Workplace Relations Minister, Tony Burke
Definition of wage theft
As part of the new ‘Closing the Loopholes’ law, the Australian government, in criminalising wage theft, has made changes to the Fair Work Act.
Wage theft occurs when an employer does not pay a worker their correct wages or entitlements in accordance with their relevant award, registered agreement and/or the relevant legislation.
This could mean:
- Paying a worker a lower rate than they should be paid
- Withholding overtime payments, and not paying penalty rates
- Not paying appropriate allowances
- Paying a flat rate or salary that does not cover what the employee would earn under the award
- Paying the employee at the incorrect award classification
- Failing to make superannuation contributions
- Deducting money from wages unlawfully
- Not offering the correct annual leave entitlements
- Not setting payroll profiles up correctly
- Not regularly auditing payroll practices, and more.
Wage theft can happen intentionally or unintentionally, even through honest mistakes made by employers, but it is only deemed a criminal offence when it is believed to be deliberate.
Also, given that concerns are typically not looked into unless an employee raises the issue or files a complaint about their pay, it is likely more widespread than commonly estimated, and occurrences of wage theft seem to be increasing.
Importance of compliance for businesses
The cost of non-compliance with the new wage theft laws could potentially be significant.
The need to conduct thorough payroll due diligence has never been more critical, as this provides the best defence against underpayments occurring, and will protect your organisation against wage theft findings.
Having a poor corporate culture towards compliance can result in serious consequences, including facing enforcement action and suffering reputational damage.
Anna Booth, Fair Work Ombudsman
Today, we’re going to look at the new wage theft laws in Australia. We’ve provided a detailed understanding of the changes to the laws, as well as compliance and risk management for your business.
Understanding the new wage theft laws
Legislative background
The legislative background for the new laws started on 4 September 2023, when the Federal Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 in the House of Representatives. The aim of the Bill was to enact reforms with significant implications for employers, employees, principals, and contractors in the instance of wage theft.
On 29 November 2023, Federal Government amendments passed the House of Representatives, focusing on casual employment, same job same pay orders, minimum standards for employee-like workers, and Fair Work Commission powers in bargaining.
On 7 December 2023, the Federal Government divided a Bill into two parts following an agreement with independent Senators and the Greens. The first part, focusing on various employment-related issues, was passed on 14 December 2023. The second part covers topics such as bargaining powers, casual employment, and workplace delegate rights.
The Senate passed Bill #2 on 8 February 2024.
Key provisions and penalties
The underpayment of workers typically occurs due to mistakes or payroll errors. Therefore, it’s now crucial to rectify these errors promptly and ensure accuracy in the future.
Failure to comply with the law can result in severe penalties. For companies, these penalties include:
- If the court determines the underpayment, the penalty will be the higher of 3 times the underpayment amount or $7.825 million.
- If the court cannot determine the underpayment, the penalty will be $7.825 million.
For individuals, the penalties include:
- A maximum of 10 years in prison.
- If the court establishes the underpayment, the penalty will be the higher of 3 times the underpayment amount or $1.565 million.
- If the court cannot determine the underpayment, the penalty will be $1.565 million.
Courts consider an organisation’s compliance culture when deciding penalties for wage theft. Deliberate misconduct by leaders, HR, or payroll without efforts to improve can result in severe consequences and harm reputations.
Intent and scope of the laws
Wage theft can occur both intentionally – where the employer has set about ripping off their workers, and unintentionally – where employers make honest mistakes in their payroll. As stated, under the new wage theft laws, a breach will only considered a criminal offence if it is thought to have occurred deliberately.
In essence, the focus will be on determining if there was an intention to underpay employees, rather than on honest mistakes or miscalculations, which won’t be protected by the new wage theft defence. Intent is the key factor in these new regulations.
Timeline for enforcement
The expected timeframes for the implementation of the new wage theft laws are provided below:
Source: King & Wood Mallesons
Preparing for compliance and managing risk
Conducting a wage compliance audit
With implementation of the new wage theft laws, employers must proactively guarantee compliance within their payroll systems. Here are important aspects to examine and implement:
- Audit and review: Prioritise regular audits of your payroll system to identify any errors or non-compliance issues promptly and rectify these as a matter of priority. Engaging a third-party auditor to ensure impartiality is a good idea, especially on a consistent basis.
- Payroll software update: Ensure your payroll software is regularly updated to incorporate changes in wage rates, entitlements, and compliance mandates. Your payroll vendor needs to offer automated updates. If they don’t, find a new vendor.
- Minimum wage: Review your payroll processes to ensure that all workers, including casual and migrant workers, receive the statutory minimum wage. This may involve adjustments to current pay rates and require regular audits.
- Employee classifications: Ensure that employees are correctly classified as full-time, part-time, casual, temporary or contract. Misclassification can lead to underpayment issues and expose your organisation to non-compliance and penalties.
- Reporting mechanisms: If legally required, establish an anonymous reporting mechanism within your organisation to encourage employees to report wage theft concerns without fear of retaliation. This can be achieved via your HR software or a dedicated reporting hotline.
- Calculating overtime: Review the algorithm of your payroll system to ensure you are calculating overtime accurately. Also, check that your system is aligned with statutory requirements, including penalty rates.
- Leave entitlements: Ensure that your payroll system accurately tracks and calculates all types of leave, including annual leave, sick leave and parental leave, and is in line with all relevant laws.
- Worker terminations: Review the process, procedures and documentation for terminating employees, ensuring compliance with notice periods and final pay determinations.
- Employment contracts: Make sure that your company’s employment contracts clearly and compliantly define the terms and conditions of employment, such as wages, working hours, and entitlements. It’s essential to periodically review these contracts to ensure they align with evolving legislation.
Training and awareness
Investing in continuous training and education for HR and payroll personnel is crucial to keep them up-to-date on current laws and best practices. It’s essential for them to have a thorough understanding of the payroll processing software and its role in ensuring compliance. Training opportunities can include workshops, seminars, and access to up-to-date resources.
It’s also important to ensure employees are well-informed about their rights and entitlements, which includes providing clear and compliant payslips outlining wage components, deductions, and accruals.
Legal and professional advice
Investing in the support of expert professionals to review the employment documentation and payroll practices of your organisation will help to identify risks and ensure nothing is left unaddressed.
By validating identified issues with an external lens, your business can demonstrate thorough due diligence and ensure costly errors aren’t missed.
Additional strategies for risk management
Self-disclosure and cooperation agreements
The Bill allows for a ‘safe harbour’ framework to motivate employers to voluntarily disclose any suspected wage theft.
Under the safe harbour provisions, employers can report an alleged wage theft violation to the Fair Work Ombudsman (FWO) and establish a cooperation agreement with the FWO.
What is a Cooperation Agreement?
The Cooperation Agreement aims to shield against potential criminal charges for deliberate wage theft, offering a ‘safe harbour’. However, the decision to form such an agreement rests with the FWO. When considering entering a cooperation agreement, the FWO will assess various factors, such as whether the employer has openly and fully disclosed their past compliance with the Act.
What does it mean if I enter into a Cooperation Agreement with the FWO?
During a cooperation agreement, the FWO cannot report intentional wage theft for criminal prosecution, but civil proceedings can still be pursued. Employers must consider negotiation strategies covering both criminal and civil prosecutions when dealing with the FWO.
Voluntary Compliance Programs
A Voluntary Small Business Wage Compliance Code (Voluntary Code) will also be established.
Compliance with the Voluntary Code means a small business won’t be criminally prosecuted if they underpay their employees.
Under the changes, if the FWO deems that a small business has adhered to the Voluntary Small Business Wage Compliance Code:
- The FWO is prohibited from referring the case to the Department of Public Prosecutions or the Australian Federal Police
- The employer can enter into a cooperation agreement with the FWO by disclosing potential wage theft offences, where the FWO may decide not to pursue prosecution.
Small businesses could face other measures by the FWO regarding the issue, such as initiating civil proceedings, and exercising additional authority under the Act.
Conclusion
The following infographic provides a valuable summary of the new wage theft laws.
Source: Herbert Smith Freehills
The new wage theft laws in Australia mark a significant advancement in combatting underpayment and wage theft. Employers need to take these regulations seriously and proactively assess their payroll systems and procedures for compliance.
Collaborating with a reputable payroll provider like CXC, can greatly assist in meeting these obligations, ensuring your organisation upholds your legal responsibilities while safeguarding employees’ rights. Australian employment law will no longer tolerate wage theft ambiguity, and non-compliant employers’ risk severe consequences.
Given the evolving employment landscape, it is crucial to stay informed and engaged with legislative updates. By taking the necessary measures and seeking expert guidance, organisations can effectively navigate the intricate realm of payroll compliance, fostering an equitable and legally compliant work environment for all.
Contact CXC today, to discuss these laws to ensure your business remains compliant.
