Criminal Penalties for Wage Theft: What employers Need to Know by 1 January 2025

Starting 1 January 2025, employers in Australia who intentionally underpay their employees will commit a criminal offence under the Fair Work Act 2009 (FWA). These measures, introduced through the Closing Loopholes Legislation, which you can learn more about here, introduces severe penalties for wage theft, aimed at strengthening protections for Australian workers. Understanding Criminal Wage Theft The new offence targets deliberate underpayment of employees. Employers will be guilty of criminal wage theft if they intentionally engage in conduct that results in employees receiving less than their full entitlements by the required payment date. This includes payments required under; 1. the Fair Work Act; 2. Modern awards; 3. Enterprise agreements. Payments Covered by the Offence The types of payments covered under the offence include; '€¢ wages; '€¢ superannuation contributions; '€¢ redundancy pay; '€¢ leave payments; '€¢ overtime; '€¢ penalty rates; '€¢ allowances '€¢ leave loading. Exclusions; Payments that are purely contractual, such as bonuses and incentive arrangements, are not covered by this offence. Scope of the Offence The offence applies to intentional underpayments occurring from 1 January 2025 onwards. However, conduct that occurred prior to this date may also be captured where it forms part of an ongoing pattern of underpayment. Importantly, accidental or inadvertent underpayment, or those resulting from a genuine mistake, are not subject to criminal penalties. Self-Reporting and Cooperation Employers who identify potential instances of wage theft can self-report to the Fair Work Ombudsman (FWO) by entering into a cooperation agreement with the FWO. By doing so, employers may avoid criminal prosecution as the FWO may agree not to refer the employer's conduct to the Commonwealth Department of Public Prosecutions or Australian Federal Police for prosecution. However, self-reporting does not prevent; '€¢ The FWO from issuing compliance notices to the employer, requiring the repayment of owed amounts; '€¢ Employees or relevant trade unions from seeking penalties or repayment of underpaid wages through civil legal avenues. Special Provisions for Small Businesses The FWO has also published the Voluntary Small Business Wage Compliance Code to assist small business employers to meet their obligations and avoid criminal prosecution, particularly once an inadvertent underpayment has been uncovered. The FWO cannot refer a small business employer for criminal prosecution if the FWO is satisfied that the small business employer has satisfactorily complied with the Code, although the employer need not comply with every factor in the Code to access the benefit of the Code. Penalties for Wage Theft The penalties for employers and individuals convicted of wage theft are substantial: For Employers: '€¢ If the amount of underpayment can be determined, the maximum penalty is the greater of; o three times the amount of the underpayment; or o 25,000 penalty units, which is currently $7,825,000. '€¢ If the amount of the underpayment cannot be determined, the maximum penalty will be $7,825,000. For Individuals: '€¢ Individuals face a maximum penalty of 10 years' imprisonment and/or, if the underpayment can be quantified, a fine equal to three times the underpayment amount or $1,565,000, whichever is greater. '€¢ If the underpayment amount cannot be determined, the maximum fine will be capped at $1,565,000. What Do Employers Need to Do? Given the significant penalties, employers must take proactive measures to ensure compliance with their legal obligations. Key steps include: 1. Review Payroll and Payments o Conduct thorough audits of payroll systems to ensure compliance with the FWA, modern awards, and enterprise agreements. o Verify correct classification of employees and ensure payment of appropriate wages, entitlements, allowances, penalties, and loadings. 2. Update Internal Policies and Training o Update internal policies to reflect the new wage theft offence. o Provide training to managers and executives on the importance of compliance with wage and entitlement obligations. 3. Implement Robust Compliance Procedures o Establish or enhance internal compliance procedures to regularly monitor payroll accuracy. o Ensure that inadvertent underpayments are promptly identified and rectified. 4. Seek Legal Advice o Consult with legal professionals to understand the full implications of the new laws and to ensure robust compliance frameworks are in place. Conclusion With the introduction of criminal penalties for wage theft, Australian employers face increased scrutiny and significant risks if they fail to meet their obligations. By taking proactive steps to ensure compliance, employers can protect their businesses, avoid penalties, and foster a fair and lawful workplace environment.