Compliance or consequences: How HR can lead against Australia’s wage theft epidemic

Wage theft has been a big issue affecting workers across multiple industries throughout Australia, enacting new laws that have swift consequences for intentional perpetrators.

On a recent episode of The HR Leader Podcast, host Jerome Doraisamy spoke to Sydney-based barrister Ian Neil SC about the new wage theft laws and why they were implemented, touching on the most common reasons why employers fail to comply with existing law and why old excuses will no longer suffice.

Neil sunk his teeth into the details of the new laws and how they will only punish perpetrators who intentionally seek to exploit workers, rather than underpayments that are derived from inadequate payroll systems.

“Wage theft is generally [speaking] the deliberate failure by an employer to pay amounts such as wages or leave entitlements, superannuation to employees, usually entitlements due to them under an industrial instrument such as an award or an enterprise agreement,” Neil said.

“The most common triggers of underpayments include misapplication of industrial instruments, administrative or record-keeping errors, and inadequate human resources practices and documentation.

“The new criminal offence is engaged only by intentional underpayment. It will not catch underpayments that are the consequence of an unintended error.”

The most common slip-ups occur from employers failing to calculate the owed entitlements and awards of workers. The consequences for these mistakes under the new laws are harsher depending on how they come about. However, small businesses across Australia have protections in place if they make a payroll mistake.

“Employers must ensure payroll systems have correct inputs from industrial instruments, implement compliance checks, train payroll staff, and establish protected reporting systems for employees,” Neil said.

“Small businesses that comply with the Voluntary Small Business Wage Compliance Code gain protection [against criminal referrals], even if intentional underpayments occur.”

As part of the new wage laws, corporate senior executives involved in intentionally underpaying employees could potentially face up to 10 years in prison, while financial consequences for such contraventions have grown exponentially – thus reinforcing the importance of HR teams to ensure compliance obligations are being met.

“These new laws sharpen the focus on compliance. Compliance will now be a critical aspect of every HR professional’s obligations. Non-compliance now carries criminal penalties – fines up to $1.5 million for individuals and $7.8 million for companies, plus potential imprisonment,” Neil said.

“Employers discovering underpayments are often dismayed and proactive in remediation. The Fair Work Ombudsman’s enforceable undertakings have been effective.”

Overall, Neil believes these laws have woken up businesses due to the harsher consequences of wage malpractice.

“There is no doubt that the new laws have attracted very serious attention. Nothing sharpens the mind of business, business people, of employers and of senior managers and individuals who will fall within the scope of the new offence than the prospect of very serious financial penalties and imprisonment,” he said.