Updated: 22 April 2024.
The federal government has passed the Fair Work Legislation Amendment (Closing Loopholes) Act 2023, which makes wage theft a criminal offence across all states and territories (it’s already illegal in Victoria and Queensland).
The reforms strengthen the compliance and enforcement framework in the Fair Work Act and increase penalties for employers that contravene, with jail terms of up to 10 years and fines of up to $7.8 million.
Criminal penalties will only apply to employers that intentionally underpay workers and pathways will be available for businesses who self-report and take reasonable steps to repay the money.
The modern award and enterprise agreement systems are complex and calculating employee entitlements and paying them correctly can involve a lot of moving parts. But you don’t want to get caught out underpaying your employees due to a lack of awareness or understanding of award provisions.
So let’s have a look at current employer obligations, how workplace laws are changing, and how to ensure your organisation is compliant.
Current rules and employer obligations
Under the Fair Work Act, employers must provide their employees with at least the minimum pay and entitlements outlined in the relevant modern award, registered agreement, National Employment Standards (NES). They must also keep records of overtime hours worked, employee payments and entitlements.
There can be a lot of things to factor in. For example, you need to ensure that your employees are receiving the minimum entitlements in accordance with the NES. This includes annual, sick, and long-service leave.
Then, if you have employees covered by modern awards, you must ensure they’re receiving minimum wages, penalty rates, overtime, leave loading and allowances in accordance with the applicable award. This can become particularly complicated when dealing with multiple awards and employees with different pay arrangements.
While it may seem simpler to pay an above-award flat hourly rate or annual salary to compensate the employee for all hours worked, this isn’t necessarily an easy fix and it’s often where employers come unstuck. Because you still need to review the actual hours the person worked to ensure the amounts paid are equal to or greater than their minimum award entitlement, factoring in any overtime entitlement that may otherwise be paid.
Currently, employers found to have deliberately underpaid employee wages face penalties ranging from on-the-spot infringement notices to court action and serious fines. Individuals or officers of a business can also be personally liable for wage theft, with penalties of up to $12,600 per contravention.
Employers who fail to pay workers' superannuation are also liable to charges and penalties by the Australian Taxation Office.
Changes under the Closing Loopholes Act
Criminal offence
From 1 January 2025, deliberate underpayment of employee wages will be a criminal offence under the Fair Work Act.
Employers will commit an offence if they intentionally engage in behaviour that results in their failure to pay an employee wages, benefits (e.g. superannuation), allowances or other entitlements required under the Fair Work Act or an industrial instrument, e.g. a modern award.
The amounts must be paid on or before the day they’re due to be paid.
There are some exceptions for certain employees in relation to superannuation contributions, long service leave payments, and some leave payments.
Employers who unintentionally underpay their employees or pay incorrect amounts by mistake will not be criminally liable.
The Fair Work Ombudsman is developing a Voluntary Small Business Wage Compliance Code and small businesses (those with 15 or fewer employees) that comply with the code won’t be criminally prosecuted if they underpay their employees.
The FWO will be responsible for investigating suspected underpayment offences. It will also have the discretion not to pursue criminal proceedings if an employer identifies and reports underpayments, and enters into a co-operation agreement with the FWO (it will still be able to commence civil remedy proceedings).
Penalties
Companies found to have deliberately underpaid employee wages will face penalties of up to 3 times the amount of the underpayment or $7.825 million, whichever is greater (or $7.825 million if the court can’t determine the underpayment).
Individuals will face up to 10 years in prison and fines of up to 3 times the amount of the underpayment or $1.565 million, whichever is greater (or $1.565 million if the court can’t determine the underpayment).
Civil penalties
From 1 January 2025, maximum civil penalties for non-small business employers (those with more than 15 employees) will increase to the greater of 3 times the value of the underpayment and the relevant penalty unit amount for the contravention.
Compliance notices
The legislation clarifies how compliance notices issued to employers by the Fair Work Ombudsman in the case of suspected underpayment can work. A notice can now require the employer to:
- Calculate the underpayment amount owed to an employee.
- Pay the amount owed to the employee.
Courts can also order employers who have been issued with a compliance notice to comply, either wholly or partly, with the terms of the notice.
The legislation also doubles the maximum penalty for non-compliance with a compliance notice.
These changes came into effect on 27 February 2024.
Serious contraventions
From 27 February 2024, the threshold of a serious contravention of obligations under workplace laws has changed.
Now, a contravention can happen where there has been a "knowing or reckless" contravention (the previous threshold was "knowing and systematic", i.e. the person or business knew they were breaking the law and it was part of a systematic pattern of conduct).
The maximum penalty for "selected civil remedy contraventions" by a business with 15 or more employees has increased by 5 times. The contraventions include breaches of the National Employment Standards, award and agreement obligations, and pay slip and record-keeping obligations.
Our advice
New wage theft and underpayment laws will have serious implications for all employers and business owners. Your wage calculation and payment practices will be under close scrutiny and you won’t be able to adopt a blasé attitude to compliance.
We recommend you review your payroll, leave, and HR systems, to ensure you are compliant with the new provisions. Remember, your payroll systems will only do what they have been told to do, so audit them regularly to ensure the numbers are right and comply with relevant awards, agreements, and current legislation.
Review what payments are being included and excluded, and the number of hours employees work, to make sure the amounts are right and all entitlements met.
Keep accurate employee wage and entitlement records, and make sure you have processes for responding to any incidents or queries about employee underpayment, so you can resolve them before they escalate. This includes fixing any errors that caused the underpayment.
Provide regular training for everyone involved in managing your payroll and people, and build and maintain a transparent, fair company culture that doesn’t tolerate any form of dishonesty.
If you need assistance with understanding your pay and record keeping obligations, MyHR is here to help.
