Business Toolbox

What is wage theft? 

Wage theft refers to an underpayment of employee entitlements, including non-payment of wages. 

While it has always been against the law to not pay minimum entitlements, new wage theft provisions in the Federal Government’s reworked workplace laws make it a criminal offence for a national system employer to fail to pay certain amounts to, on behalf of, or for the benefit of, a national system employee. 

What does criminalising wage theft mean? 

As part of the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 sections 327A, 327B and 327C will be added to the Fair Work Act 2009 (FWA). These are new wage theft provisions that address underpayments and non-payments and require, in some instances, for them to be dealt with as criminal matters. 

As per the new legislation, section 327A is due to come into effect on January 1, 2025, or the day after the Voluntary Small Business Wage Compliance Code is first declared by the Minister for Employment and Workplace Relations. This section provides details of when an employer will commit an offence that may be subject to criminal conviction.  

As per section 327A, an employer commits an offence if;  

a) the employer is required to pay an amount (a required amount) to, on behalf of, or for the benefit of, an employee under: 

(i) this Act; or 

(ii) a Fair Work instrument; or 

(iii) a transitional instrument (as continued in existence by Schedule 3 to the Transitional Act); and

b) the required amount is not an amount covered by subsection (2); and 

c) the employer engages in conduct; and 

d) the conduct results in a failure to pay the required amount to, on behalf of, or for the benefit of, the employee in full on or before the day when the required amount is due for payment. 

For this matter to be considered an offence, in relation to section 327A (1), as seen above, the below elements are required to be satisfied: 

1. Absolute liability - meaning that the employer was required to pay an amount, in line with 327A (1) (a) and (b), and; 
2. Intention - meaning the employer intentionally engaged in the relevant conduct and the employer intended that their conduct would result in a failure to pay the required amount in full on the day when it was required as per 327A (1) (c) and (d). 

As per section 327A, an underpayment will not include payments of superannuation contributions, long service leave entitlements, other leave payments such as victims of crime leave, service for jury duty leave or leave payments for emergency services duties for the purposes of this section. 

These new provisions are targeted to prevent and impose harsher penalties to stop underpayment of wages and other leave entitlements such as annual leave and personal leave.  

Honest mistakes resulting in an underpayment will not be considered to be an offence under the wage theft provisions. 

The penalty provisions 

Although current breaches of the FW Act may not be criminal, there may be hefty penalties payable of up to $187,800 for individuals or $939,000 for body corporates. These figures are as of July 1, 2023.  

Under the new provisions, harsher penalties will be enforceable by the Department of Public Prosecutions or the Australian Federal Police, for breaching section 327A of the FW Act. For these offences the punishable conviction may include: 

Individual: Up to 10 years’ imprisonment, three times the amount of the underpayment or $1.565 million (whichever is greater). 

Body corporate: Three times the amount of the underpayment or $7.825m (whichever is greater). 

Voluntary Small Business Wage Compliance Code 

Under the upcoming amendments, section 327B of the FW Act, where the Fair Work Ombudsman (FWO) is satisfied that a small business has complied with the Voluntary Small Business Wage Compliance Code, the FWO must not refer the conduct to the Department of Public Prosecutions or the Australian Federal Police. 

The FWO may enter into a cooperation agreement with the employer where an employer discloses that they may have committed a wage theft offence. The FWO may then agree not to refer the matter for prosecution. 

Small businesses may have other action taken by the (FWO) in relation to the conduct, including;  

• an inspector to commence or continue with civil proceedings; 
• FWO to enforce undertakings in line with section 715 of the FW Act; 
• an inspector to issue compliance notices, in line with section 716 of the FW Act; or 
• for the FWO or an inspector to exercise any other power that is not mentioned within this section.  

How can you make sure you're compliant? 

To make sure your business is compliant, start by checking you are able to answer the below questions: 

1. Are you applying the correct industrial instrument? Check if there is an award or enterprise agreement that may cover your employees. The coverage clause in the award may provide some guidance. If you are not applying any instrument, is there another agreement that may cover your employees?  
2. Are you paying the correct rates? Check that your employees are being classified correctly within an award or enterprise agreement and what you are currently paying is meeting those requirements. If your employees are not covered by an award or enterprise agreement, are you paying minimum rates? Make sure employees are receiving at least the national minimum wage if they are award or enterprise agreement free, (please note there may be different rates for a junior or an apprentice/trainee).  
3. Is your business applying offsetting or paying a flat rate? Offsetting or paying a flat rate is a technical breach of the award. However, it may be done if there is a sufficient clause in the contract of employment and you are annually calculating that employees are receiving a rate where they are better off overall. If these calculations are not completed, there may be an underpayment which may be reviewed in conjunction with the new wage theft legislation. Make sure the offsetting arrangement is compliant with the relevant industrial instrument.  

Measures to ensure compliance  

Businesses should be completing regular payroll checks internally and conducting external payroll audits. 

This is to ensure any mistakes can be rectified so the issues do not reoccur. Payroll audits are recommended at least once a year, however best practice would be bi-annually.  

If you need to engage an accountant or an external business to assist with payroll audits, Optima Partners may be able to provide assistance. Contact Optima Partners on (08) 6267 2200 or email [email protected]. 

Our IR Masterclass has been updated to include all the latest content in the Closing Loopholes Bill.  

Given the extent of the changes, it is recommended that all employers review their employment contracts and policies and procedures.   

Contact our Employee Relations Advice Centre for more information about how CCIWA’s employment lawyers and HR consultants can assist with this on (08) 9365 7660, or via [email protected].