Preparing for a new era of wage compliance – Criminal Liability in wage theft

The Australian business landscape has entered a new phase of compliance and enforcement intended to address underpayment of wages with the passing of the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) (‘the Act’) in December 2023.

The Act amends the Fair Work Act 2009, introducing a criminal offence for intentional underpayment of wages and certain entitlements. From 1 January 2025, the wage theft offence carries hefty penalties of up to 10 years’ imprisonment and/or fines of up to $1,565,000 for an individual or $7,825,000 for a body corporate (or three times the underpayment amount, if greater).

Provisions brought in by these amendments will extend liability for the new offence to company officers, and to the Commonwealth Government (where it is an employer). Additionally, a significant amendment specifically concerning the right of entry to investigate underpayments was made by the No. 2 Act and will come into effect on 1 July 2024.

This change at a federal level will operate alongside existing wage theft legislative schemes in Queensland and Victoria, which aim to protect worker entitlements and push employers to proactively ensure they are meeting their obligations.

For the construction industry, be aware that entry permit holders will now have the authority to apply for an exemption certificate from the Fair Work Commission, allowing them to enter workplaces without the previously required 24-hour notice if there is a suspected underpayment of wages or other monetary entitlements where the Commission considers that advance notice would hinder an effective investigation into the suspected underpayment. This change poses an increased risk of unannounced investigations, emphasising the importance of ensuring compliance with wage obligations to avoid potential disruptions and legal complications. Understanding and preparing for these changes is paramount to maintain smooth operations and uphold the integrity of your business practices.

Understanding the meaning of ‘intentional underpayment’

The new offence specifically targets employers who intentionally engage in conduct leading to the underpayment of their employees. Understanding the meaning of ‘intentional’ in the context of these changes is complex, but incredibly important for employers seeking to manage their compliance obligations.

Engaging in conduct such as purposefully falsifying time and wage records to avoid paying penalty rates and allowances, or misclassifying employees to pay less than their legal entitlements, will likely fall within the definition of the wage theft offence under the Act.

Other forms of conduct, which on their face might seem negligent rather than intentional, could potentially be viewed as wage theft under the new laws. For example, consistent and systematic failure to conduct payroll compliance checks to avoid the detection of underpayments could be construed as intentional wage theft. Further, failing to keep payroll systems up to date for changes in law or after the identification of discrepancies, could be evidence of intentional underpayment.

Large organisations and multinational companies, including those with sophisticated payroll systems and large HR teams, can still be at risk of committing wage theft, and in fact, have been the source of some of the largest wage and entitlement underpayment scandals in Australian history.

Scope of entitlements covered

A wide range of employee entitlements are covered under the wage theft offence in the Act including payments required to be made under the Fair Work Act 2009, the National Employment Standards, modern awards and enterprise agreements. This includes wages, overtime, penalty rates and some types of leave.

Entitlements to payments derived solely from an employment contract (for example a discretionary performance bonus), long service leave, and paid leave for jury service or emergency services duties are excluded from the new provisions.

Importantly, as of 1 January 2024, superannuation is an entitlement under the National Employment Standards. As such, unpaid or underpaid superannuation contributions may fall within the scope of the new wage theft offence once it commences from 2025.

What can employers do to protect themselves against allegations of wage theft?

While there are new provisions in the law allowing the Fair Work Ombudsman to enter into a cooperation agreement with an employer that would allow them access to a safe harbour from potential criminal prosecution in certain circumstances, the cost of non-compliance could still 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 assist in protecting against findings of wage theft.

This is reflected in the comments recently made by Fair Work Ombudsman, Anna Booth, which were aimed at large corporate employers in Australia.

“For years now, the Fair Work Ombudsman has been highlighting that large corporate employers need to place a much higher priority on putting systems and processes in place to ensure they pay their employees’ full lawful entitlements,” Ms Booth said. “Employers cannot put in place systems that prioritise their financial or competitive advantage without also putting in place strong governance to ensure that those systems meet minimum entitlements.”

She added, “having a poor corporate culture towards compliance can result in serious consequences, including facing enforcement action and suffering reputational damage.”

We are in a new era of accountability for Australian employers. With January 2024 already behind us, the rest of 2024 will disappear just as quickly. Early action may prove a prudent decision.