From January 1, 2025, Australia implemented new criminal wages theft legislation under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023. The legislation makes it a crime to intentionally underpay an employee.

Even though most employers are committed to doing the right thing, these changes mirror the government's zero-tolerance policy towards deliberate exploitation of wages—and the repercussions are high. As a business owner, it is imperative you are aware of what has changed, the risks involved and how to safeguard yourself and your employees.

Definition of Wage Theft

Wage theft is not a clerical error. In the new law, it is the deliberate underpayment of wages or entitlements and includes:

• Payment of less than the applicable award or minimum rate
  
  
• Not paying the proper penalty rates, overtime, or allowances
  
  
• Failure to make superannuation contributions
  
  
• Misclassification of employees (i.e., as independent contractors or incorrect levels as per the relevant industrial instrument)
  
  
• Refusal to grant entitlements like annual leave or loading
  
  
• Intentionally falsifying pay records or timesheets

To qualify as a criminal offence, the behaviour has to be knowingly intentional—that is to say, the employer has to have known about the underpayment and gone ahead anyway. The difference here is important as honest mistakes - serious as they are - will be addressed through civil means and not through criminal prosecution.

What are the Criminal Penalties?

The new regulations bring in some of the harshest underpayment penalties ever faced in Australia:

For individuals (such as business owners or directors):

• Imprisonment of up to 10 years
• Fines up to $1.565 million or three times the amount of the underpayment (whichever is larger)

For businesses

• Penalties up to $7.825 million, or three times the amount of the underpayment (whichever is larger)

The "three times" penalty is intended to eliminate any incentive to underpay employees, primarily in the case of large or systemic breaches.

The Voluntary Small Business Wage Compliance Code

Realising that small businesses do not have the same means as bigger corporates, the government implemented the Voluntary Small Business Wage Compliance Code as a safeguard against honest errors by legitimate employers.

If a business with fewer than 15 workers operates in accordance with this Code and makes a mistake and underpays employees, the Fair Work Ombudsman (FWO) cannot refer it for criminal prosecution.

To qualify for protection, the business must:

• Make sincere attempts to comprehend wage requirements
  
  
• Maintain reasonable systems and processes to comply
  
  
• Immediately investigate and settle any underpayments
  
  
• Not commit any crime or act recklessly

While adherence to the Code will avoid criminal prosecution, the employer might still be liable for civil penalties and have to pay back wages to affected employees.

The FWO has discretion to determine if an employer is to be prosecuted under the criminal wage theft provisions. However, they are prevented from referring a case if:

• The employer is a small business (with fewer than 15 employees), and
• The company has been in compliance with the Voluntary Small Business Wage Compliance Code.

This is a strong protection, particularly for small firms struggling to do their best with minimal means. But it also leaves no room for excuses - you'll have to be able to show that you're making a genuine effort to fulfill your obligations.

Learning from the Mistakes of Others

The passage of the legislation has come against a backdrop of a number of prominent underpayment of wages cases against highly visible companies including Woolworths and Qantas and restaurants operated by celebrity chefs. The cases undermined public confidence and pressured policymakers to do something.

What is different as a result is that intentional misconduct now cannot be explained away as a systems problem or "accident." Knowing your business is non-compliant and doing nothing could land you in jail.

How to Avoid Trouble?

This is a good moment to review internal procedures and payroll practices. Here is how to start:

1. Undertake a Wage Audit

Check records of payroll against the applicable awards, enterprise agreements, and the National Employment Standards. Check for mistakes in pay levels, allowances, overtime, and super. Key to remember is that national minimum wage review decision will be announced in June and will apply from 1^st July so you need to be sure you have your team on the right Awards, on the right levels and apply the relevant increases. We will of course alert you as soon as the decision is revealed.

2. Check your Awards

Modern Awards can be challenging when trying to determine which is the correct one for your business of for a particular role.  In fact, different Awards can apply to different team members depending on the type of work they do for the business.  As always, we are here to support you with any questions you may have regarding the correct application of the industrial instruments.

3. Sort your documentation

Make certain you've got up-to-date:

• Employment contracts and supporting documentation if changes have been made and agreed upon by both parties
  
  
• Position descriptions
  
  
• Timesheets and attendance records where/if required
  
  
• Pay slips and payroll records

Detailed records are your best protection if ever a question arises and you need to prove that you have been trying to do the right thing.

4. Train Your Managers

Your managers have a key role in rostering, timesheets, and authorising overtime. Check that they understand their area of responsibility and level of authority when it comes to ensuring compliance in your business.

5. Seek support

When unsure, seek the services of experts who are knowledgeable about workplace compliance requirements. Naturally, we will toot our own horn here when it comes to helping you navigate the application of Awards and the like and are here to help you stay on the right side of the law. You can contact HR Staff n’ Stuff here.

Key points to consider

This legislation is now in play and represents a change in the regulation of workplaces: the employer is to be proactive, and not simply react. Even if making your best effort, you have to demonstrate/prove that you are taking reasonable steps to comply with the law—and have procedures to correct things when they do go awry.

Investing the time now to get things right is not merely a matter of evading fines. It’s about establishing credibility with your stakeholders, protecting the reputation of your business, and simply doing the right thing. Your employees have the right to be paid correctly for their work and aside from being illegal, it is both immoral and unethical to do otherwise.

Having trouble reviewing your Awards or understanding their application?  The HR Staff n’ Stuff team is available to assist and advise you so contact us now to discuss the support you require.