Wage theft on track to be criminalised: How to ensure your business is not at risk

A new bill has hit Parliament this month, aiming to address intentional underpayments impacting the Australian business landscape. Here’s what HR professionals need to know about the proposed changes.

The federal government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (bill) on 4 September 2023, which aims to criminalise intentional underpayments to employees.

Under the proposed offence, companies that engage in intentional wage theft will carry a maximum fine of the greater of either $7.83 million or three times the amount of the underpayment.

Meanwhile, for individuals who engage in intentional wage theft, the proposed offence will carry a maximum of 10 years imprisonment and/or a maximum fine of the greater of either $1.57 million or three times the amount of the underpayment.

The bill has been referred to the Senate education and employment legislation committee, with a report due 1 February 2024. If the bill is passed, the wage theft provisions will take effect on 1 January 2025 (or an earlier date to be determined).

The proposed changes come after Fair Work Ombudsman (FWO) data showed that businesses are underpaying workers $850 million a year. It recovers less than two-thirds of these lost wages.

Colin Biggers & Paisley partner Adam Foster has written a blog dissecting the bill, offering pivotal insight into what leaders need to know about how the changes may affect them and their business.

“Under the proposed offence, the prosecution will need to prove beyond reasonable doubt that the employer intentionally failed to pay employees their minimum statutory entitlements,” Mr Foster explained.

“Underpayments that are accidental, inadvertent, or based on a genuine mistake would not be caught by the provisions. For example, a failure to make a payment due to a banking error would not be caught by the provisions.”

That being said, Mr Foster flagged that it would “likely be considered an intentional underpayment and, therefore, wage theft in this proposed offence created by the bill” if one of the following two instances occurred:

1. Any unlawful off-set imposed by an employer on an employee, such as an employer requiring an employee to pay back (or deduct) a certain amount of money that is not an employee benefit or otherwise does not meet the permitted deduction regime within the act; or,
2. Any employer requiring an employee to spend wages on a benefit that is potentially not an employee benefit, such as payment for a laptop that is owned by the employer.

If an employer comes to find that they have engaged in wage theft, Mr Foster noted that the bill proposed a “safe harbour” framework, encouraging them to self-disclose the theft.

“The safe harbour provisions will allow for an employer to self-disclose an alleged wage theft contravention to the Fair Work Ombudsman (FWO) and enable the making of a cooperation agreement with the FWO,” Mr Foster explained.

“The cooperation agreement will provide protection or a ‘safe harbour’ from potential criminal prosecution in relation to intentional wage theft. Notably, however, any cooperation agreement will be at the discretion of the FWO.

“In exercising its discretion to enter into a cooperation agreement, the FWO will examine a range of factors to determine whether to enter into a cooperation agreement, including whether the employer has made a ‘voluntary, frank and complete disclosure of the conduct’ [and/or] the employer’s past compliance with the act.”

What you can do now

Despite wage theft provisions not taking effect until 1 January 2025 (pending the bill’s passing), there are some clear and practical steps leaders can take to ensure that their risk of exposure as a business is reduced, Mr Foster said.

“Review your obligations with respect to employee entitlements under the act and industrial agreements now,” he advised.

“We often see underpayment issues arising around unpaid allowances, the calculation of penalties for casuals and the application of loadings. The best way to undertake this work is by conducting a sample audit with your trusted legal services provider to ensure you have the protection of legal professional privilege over any wage audit you conduct.

“Conduct a review of your wage deduction regime and seek advice on whether it meets the current statutory regime and the proposed amendments to the bill.”