Australia’s new wage theft laws take effect on 1 January 2025. These laws are set to make a major change to the way underpayments are viewed in Australia. It’s going to be a criminal offence to intentionally underpay someone.  Ensuring that workers are paid correctly will be more important than ever for Australian businesses.

When introducing the new legislation, the Minister for Employment and Workplace Relations said ‘if a worker steals from the till, it’s a criminal offence – as it should be. But in many parts of the country if an employer steals from a worker’s pay packet, it’s not. It’s time to end this double standard once and for all.’

So how exactly do the new laws intend to achieve this, and what does this mean for Australian businesses?

 

What the laws say

The laws will make it a criminal offence for an employer to intentionally underpay its employees their entitlements under the Fair Work Act 2009 or an industrial instrument. For some employees, this will extend to non-payment of superannuation and long service leave entitlements.

There is also the potential for a person to be held criminally liable if it’s proven that they aided, abetted, counselled or procured the commission of a wage theft offence. This means individuals, such as company directors, executives or other staff, could be personally prosecuted if the requirements for complicity are met.

The penalties for breaching the provisions are significant. Where a breach is proven companies could face fines of up to $7.825 million, and individuals could face up to 10 years in prison and fines of up to $1.565 million. Complying with the laws is going to be important for Australian businesses, and everyone who has a hand in the payment of workers will have a role to play.

 

What does ‘intentional’ underpayment mean?

An underpayment will be taken to be intentional if the employer:

• means to engage in conduct; and
• means for that conduct to result in a failure to pay the required amount to, or for the benefit of, the employee in full on or before the day when the required amount is due for payment, or is aware that this will occur in the ordinary course of events.

 

This is a high bar and will only catch deliberate underpayments.

However, when it comes to attributing intention to a company, a wider range of considerations will come into play.

Until now, the Fair Work Act has provided that the state of mind, or the intention, of an officer, employee or agent of a company (or a delegate) will be attributed to the company if they are acting within the scope of their actual or apparent authority. If one of these people intended to underpay someone, the company will also be taken to have intended to underpay them.

The new provisions will replace this test with the fault elements of intention under the Commonwealth Criminal Code. This means that a company’s intention can be established by proving that:

1. the company’s board of directors intentionally engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence;
2. a high managerial agent of the company intentionally engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence (unless it can prove that it exercised due diligence to prevent the conduct, or the authorisation or permission);
3. a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the Fair Work Act or relevant instrument; or
4. the body corporate failed to create and maintain a corporate culture that required compliance with the Fair Work Act or relevant instrument.

 

The concept of a company being liable if its directors or high managerial agents engage in an offence, or authorise or permit an offence, is not new.

What is new is the concept of an offence occurring because a corporate culture existed that directed, encouraged, tolerated or led to non-compliance, and even further, that an offence occurred because the company failed to create and maintain a corporate culture of compliance.

The breadth of these final two categories is very wide. Because of this, they are excluded from many federal criminal statutes, and were excluded from the Fair Work Act, until now.

 

What is a corporate culture of compliance?

A ‘corporate culture’ means an attitude, policy, rule, course of conduct or practice existing within the corporation.

While few companies would have a policy or rule requiring underpayment, you can see how some companies could have an ‘attitude’ or ‘practice’ that tolerates underpayments or leads to underpayments.

You can also see how many companies could be failing to ‘create and maintain’ an attitude, policy, rule, course of conduct or practice that ensures compliance.

 

How can a company ‘create and maintain’ a culture of corporate compliance?

The requirement to ‘create and maintain’ a compliant corporate culture means companies will need to take proactive and systematic steps to ensure wage compliance.

This is where the laws have the potential to catch companies that aren’t making sufficient efforts to ensure they are paying their employees correctly.

It remains to be seen exactly what lengths this will require companies to go to, but under the new regime, it’s clear that a company can’t simply just set up its payroll software and hope for the best.

To meet this requirement, it’s likely that steps such as the following would be needed:

• creating a comprehensive payroll compliance plan, including conducting risk assessments to find potential vulnerabilities within your payroll system, addressing areas prone to error or oversight with tailored strategies to rectify and mitigate risks;
• ensuring payroll staff receive sufficient training in how to correctly pay employees;
• conducting regular payroll audits to ensure compliance;
• making sufficient effort to ensure awards, enterprise agreements and other legislative requirements are being applied correctly.

 

Protections from criminal prosecution

The laws will include some ‘safe-haven’ protections for employers.

Small businesses won’t be referred for criminal prosecution if they’re able to show that they followed a new Voluntary Small Business Wage Compliance Code. This code is in the process of being developed.

For larger businesses, there will be an option to self-report suspected breaches of the wage theft laws to the Fair Work ombudsman (FWO), and if the FWO agrees, to enter into a cooperation agreement, which would preclude prosecution.

Importantly, these safe-haven protections won’t protect employers from the FWO pursuing civil proceedings against them.

 

Is your business ready?

Ahead of the commencement of the new provisions, it’s important that Australian businesses are proactive and implement a payroll compliance plan to ensure they are compliant. All employers should be asking the question, is our corporate culture sufficient to ensure our people are being paid correctly?

 

Simplify payroll compliance with Source. Our expert legal team can assist you in creating a tailored payroll compliance plan for your business. Reach out today to learn more.

Discover more insights: Watch our on-demand webinar, Are You Ready for the New Federal Wage Theft Laws?, and gain expert insights on this topic. Access it here.