The headlines of the last few years have been full of stories about the underpayment of workers, so the introduction of criminal penalties in the Fair Work Act 2009 (the Act) for employers engaged in the intentional underpayment of wage and other monetary benefits comes as no surprise. That said, these provisions mark a significant shift in employment law and employers must be prepared.
Wage underpayment shouldn’t happen but does and oftentimes employers will argue mistakes are inevitable given the difficulty of complying with Australia’s constantly changing industrial laws. The new legislation, which is not anticipated to come into force before 1 January 2025, is not aimed at employers who have made a genuine error, but rather those who intend to underpay employees and those that do not take measures to ensure and audit for compliance.
Employers must be aware of this new crime and take steps to avoid prosecution.
Definition and Scope of the Offence
Employers will commit 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 Act or a fair work instrument (such as a modern award or enterprise agreement); and
- engages in conduct that results in their failure to pay those amounts to the employee on or before the day they are due to be paid.
The conduct by the employer that results in the underpayment must be intentional. What behaviour constitutes ‘intentional’ will no doubt be determined in court in due course, but ‘reckless’, ‘indifferent’ or ‘unjustifiable’ behaviour by the employer that results in underpayment may be caught.
Honest mistakes or miscalculations will not be caught by the wage theft offence.
Penalties for Wage Theft
For a company the following penalties will apply:
- if the court can determine the underpayment, the greater of 3 times the amount of the underpayment and $7,825,000; or
- if the court can’t determine the underpayment, $7,825,000.
Ancillary offenders, such as corporate officers involved in the offence, may also be liable
For an individual the following penalties will apply:
- a maximum of 10 years in prison; or
- be fined as follows:
- if the court can determine the underpayment, the greater of 3 times the amount of the underpayment and $1,565,000; or
- if the court can’t determine the underpayment, $1,565,000.
Employers found guilty of multiple offences related to a course of conduct will be considered guilty of a single offence for sentencing purposes.
Enforcement and Investigation
The Fair Work Ombudsman (FWO) will be responsible for investigating suspected underpayment offences and will refer cases to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for prosecution.
Safe Haven for Self-Disclosure
A new Voluntary Small Business Wage Compliance Code is being developed to encourage self-disclosure. Evidence of compliance with the Code will ensure that the FWO will not refer conduct for criminal prosecution
A person who self-reports offending conduct may enter into co-operation agreements with the FWO, potentially avoiding criminal prosecution. Civil penalties or non-punitive action (such as issuing a compliance notice that workers be re-paid) may still apply.
Implementation Timeline
The law will come into effect on the later of 1 January 2025, or the day after the Voluntary Small Business Wage Compliance Code is declared.
If the Code is not declared, the offence will not commence.
Civil Penalties
Just because an underpayment is not criminal does not mean civil penalties do not apply. Apart from these policy developments, employers are already exposed to:
- Significant financial penalties for contravening certain provisions of Act such as by underpaying (including sham contracting and unlawful job advertisements).
- Fines for providing false and misleading documents to the FWO and making unreasonable deductions from their employees’ pay.
- Penalties for failing to comply with their superannuation requirements.
These penalties can apply to the directors and managers who control the operations of employer companies, and to franchisors who have a significant degree of control over franchisees.
Implications for Employers
Employers can be sure that employees, unions, regulators, governments, and the media are being increasingly vigilant about underpayment. They need to take steps to minimise their exposure to the risks of fines and criminal penalties by auditing their wage rates and human resources practices to ensure that they are compliant. Employers should take proactive steps to ensure compliance with these new regulations, including:
- Review Payroll Practices: Regular audits and reviews of payroll systems can help identify and correct potential underpayments.
- Employee Training: Ensure that HR and payroll staff are fully informed about the new laws and their implications.
- Legal Consultation: Seek legal advice to understand the full scope of the legislation and to ensure all business practices comply.
By understanding these new regulations, employers can avoid severe penalties and foster a fair and compliant workplace.
Contact JFM Law on (02) 9199 8597 to discuss how we can help you and your business manage its exposure to these new criminal penalties. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au.
The information contained in this post is current at the date of editing – 12 June 2024.