Understanding the new wage theft laws in Australia: Effective from 1 January 2025

On 1 January 2025, significant changes will come into effect in Australia regarding wage theft, as new criminal laws aim to combat the deliberate and systemic underpayment of employees. These laws not only tighten the screws on businesses that fail to meet wage obligations but also place the onus on employers to ensure compliance. Here we delve into the details of the new legislation, outline pre-emptive measures businesses can adopt, provide steps to mitigate liability if non-compliance occurs, and explore the penalties for contraventions.

OVERVIEW OF THE WAGE THEFT LAWS

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 was intended to address the growing concerns over workers being underpaid or denied their lawful wages. Wage theft refers to situations where employers fail to pay their employees correctly, either through underpayment, unpaid overtime, or denying other entitlements. The offence requires proof of intentional conduct, meaning accidental or unintentional underpayments will not constitute wage theft. The new framework therefore categorises intentional wage theft as the criminal offence, carrying potential imprisonment and substantial fines for offenders.

KEY FEATURES OF THE WAGE THEFT LAWS

1. Criminalisation of Wage Theft

For the first time, wilful underpayment or failure to pay employees their lawful entitlements may result in criminal charges against offending employers. Prosecutions may be commenced by the Director of Public Prosecutions or the Australian Federal Police within 6 years of the commission of the offence.

2. Definition of Wage Theft

Wage theft is any intentional act of paying employees incorrectly or late. However, the provisions will not apply to payments for:

a.       superannuation contributions;

b.       taking long service leave;

c.       taking leave connected with being the victim of a crime;

d.       taking jury duty leave; and

e.       emergency services duties.

3. Extended Liability

The new laws extend liability not only to offending businesses but also to individuals involved in decision-making processes, such as directors and managers. This is because imprisonment cannot be ordered against a corporate entity. A Court can only imprison the “acting mind” of the entity, being a natural person or people responsible for underpaying employees.  

PREEMPTIVE MEASURES FOR BUSINESSES

To avoid the pitfalls associated with wage theft and ensure compliance with the new laws, businesses can take several proactive steps:

1. Conduct Regular Audits

Conducting regular audits of payroll systems and employee classifications is crucial. Businesses should review their payroll records to ensure all employees are classified correctly according to their roles and are receiving the appropriate wages and entitlements.

Critical to this process is understanding the Fair Work Act as well as applicable industrial instruments such as Modern Awards and Enterprise Agreements.  These instruments impose monetary obligations on employers including minimum wage rates as well as overtime, penalties, allowances and loadings.  Legal advice is crucial to understanding the industrial relations framework applicable to your staff.

2. Invest in Training and Education

Training staff on the new laws and their obligations is vital, especially those involved in payroll and HR functions. Educated staff are less likely to make errors that could lead to non-compliance.

Ignorance of the law, or difficulty in identifying the correct rates of pay among over 120 Modern Awards, are not defences to the crime of wage theft.

3. Implement Robust Payroll Systems

Investing in reliable payroll software can help streamline wage calculations and ensure accuracy. Such systems can automatically update according to periodic changes in wage rates and entitlements, minimising risks of human error and falling into the “set and forget” trap, which occurs all too often. Expert employment lawyers can help you engage remediation specialists under the protection of legal privilege to identify historical underpayments if they exist.

4. Maintain Detailed Records

Keeping thorough and accurate records of hours worked, wage rates, and entitlements is essential. This documentation can serve as a defence in the event of an audit or legal challenge and assist the Fair Work Ombudsman investigating alleged underpayments.  The Fair Work Act imposes obligations on employers to create and maintain specific employee and wage records.

5. Create Clear Policies and Codes

Developing clear workplace policies and compliance codes regarding wage payments and entitlements can establish a proper standard of practice within the organisation. These policies and codes should be communicated to all employees.

6. Establish Safe Harbours

Employers have the option of self-reporting suspected wage theft to the Fair Work Ombudsman and entering into a “cooperation agreement” with the workplace regulator. However, this safe harbour does not prevent civil recovery and penalty actions by the Fair Work Ombudsman against the offending employer – it just shields the employer from criminal liability.

For small business employers, a Voluntary Small Business Wage Compliance Code will be established. However, its details have not yet been published. Compliance with the Code means a small business may avoid criminal prosecution if it underpays its employees.

7. Seek Legal Advice

The employment laws are incredibly complex. Consulting with legal experts specialising in employment law is critical to help businesses understand their obligations under the new legislation. Lawyers can also provide guidance on best practices for compliance and assist in implementing annualised wage arrangements to permit payment of “catchall” rates of pay to employees to satisfy any obligations to pay additional rates, loadings or allowances.  However, expert drafting and legal advice is required.

Contact the Employment team at Henry William Lawyers.

STEPS TO MITIGATE LIABILITY

In instances where a business has failed to comply with wage payment requirements, certain steps can be taken to mitigate potential liability:

1. Seek Legal Counsel

Engage lawyers if you are concerned about compliance with wage and employee obligations.  Legal advice is privileged, meaning it may protect communications and documents being produced in any subsequent Court proceedings.  Failure to engage lawyers at the first opportunity is often a mistake as regulators will seek production of documents which may expose the business to legal liability.

Being proactive by working with expert employment lawyers will put your business in the best position to do what the law requires – paying your staff lawfully.

2. Rectify Underpayment Immediately

Upon discovering an instance of wage theft, and subject to legal advice, businesses should rectify the situation as quickly as possible. Promptly paying the owed amounts, including any interest or penalties, can demonstrate good faith efforts to comply. If a compliance notice has been issued by the Fair Work Ombudsman, employers should comply with its terms by either calculating the underpayment amount owed to an employee and/or pay the amount owed to them.

Furtherance of a known contravention constitutes its own contravention in of itself under the new wage theft laws.

3. Document Corrective Actions

Keeping a record of all corrective actions taken is essential. This documentation can serve as evidence of the business’s commitment to rectifying the situation and complying with the law moving forward.

4. Engage with Employees

Open communication with affected employees can foster goodwill. Informing them of the steps being taken to rectify the situation can help maintain trust and mitigate potential legal actions.

5. Review and Revise Practices

Conducting a comprehensive review of current practices to identify the root cause of non-compliance can prevent future underpayments. Implementing revised practices based on this review is crucial.

PENALTIES FOR CONTRAVENTIONS

The penalties associated with contravening the new wage theft laws are significant and serve as a deterrent against non-compliance. They include:

1. Criminal Charges

Wage theft may result in criminal charges against individuals within the organisation, including directors and managers. Convictions can lead to imprisonment for up to 10 years, depending on the nature and scale of the offence.

2. Financial Penalties

Businesses found guilty of wage theft can face substantial fines, which can vary depending on the severity of the offence. Fines may reach into the millions for larger corporations, while smaller businesses can also face significant financial repercussions.

If a Court cannot determine the value of the underpayment, a penalty of $7.825 million will be ordered against a company, or $1.565 million will be ordered against an individual, further emphasising the need to maintain detailed records to assist the Court.

The value of any underpayments will also be ordered to be paid back to the affected employees.

3. Reputational Damage

Beyond legal and financial ramifications, businesses found guilty of wage theft may suffer severe reputational damage. This can lead to decreased employee morale, loss of customers, and challenges in attracting new talent.

CONCLUSION

The dawn of new criminal wage theft laws in Australia represents a pivotal moment in the protection of employees' rights. Businesses must take proactive measures to ensure compliance with these laws to avoid severe penalties and maintain their reputation. By conducting regular audits, investing in training, implementing robust payroll systems, and seeking legal advice, employers can significantly reduce the risk of non-compliance. In cases of failure, taking swift corrective actions and maintaining transparent communication with employees and the regulator can help mitigate liability.

As the 2025 deadline approaches, businesses must prioritise understanding and adhering to these critical legal requirements. These new laws are not retrospective. Employers should get organised now before the new laws take effect in the new year.

Contact Henry William Lawyers now if your business requires advice and assistance with managing your staff.