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As we enter 2025, a significant shift is occurring in Australian employment law. New provisions in the Fair Work Act 2009 (Cth) are set to criminalise the intentional underpayment of wages, marking a pivotal moment in the fight against wage theft. This change will be effective from 1 January 2025.
What's changed? Previously, penalties for wage underpayment primarily focused on rectification and fines. However, the new laws introduce the potential for imprisonment, signalling a serious crackdown on employers who deliberately underpay their staff.
Who does this affect? The new provisions apply to all national system employers in Australia, encompassing most private sector businesses, from sole traders to large corporations.
However (and importantly), this isn’t just a business issue, individual employees, including CEOs and finance managers, can also be held personally liability, including imprisonment or hefty fines.
What are the penalties? The maximum penalty for intentional wage theft is a staggering 10 years' imprisonment and/or 25,000 penalty units (currently $7.8 million).
What is 'intentional' underpayment? While the specific definition of 'intentional' is complex, it generally refers to knowledge of underpayment. Unintentional errors, such as administrative mistakes or misinterpretations of award conditions, are not typically subject to criminal penalties. However, ignorance is not an excuse, and businesses must take proactive steps to ensure compliance.
How to prepare to mitigate the risk of wage theft and avoid potential legal consequences, we suggest that employers should take the following steps:
1. Review awards and agreements:
- Verify the applicable modern award or enterprise agreement for each employee.
- There are SO many times I hear clients say “oh, we don’t follow the award” or, “our employees are salaried so the award doesn’t apply”. Statements like this shock me, because I realise how common it is that people actually think it’s true. Where your employees are not covered by an enterprise agreement, they will (more likely than not) be covered by a modern award. This is regardless of the fact that they are paid a salary. This also means that they are entitled to any additional allowances and/or overtime under this award.
- Stay updated on annual pay guide changes and ensure salary and wage alignment. Modern award pay guides update yearly (usually around 1 July each year) and pay rates usually go up in accordance with inflation rates. We usually advise clients to check the Pay Guide annually (at a minimum) to ensure compliance.
2. Scrutinise payroll practices:
Ensure compliance with minimum wage, overtime, and other entitlements.
Correctly classify employees based on their roles and responsibilities.
Timely and accurately pay superannuation contributions.
3. Invest in training and technology:
- Train HR and payroll staff on wage compliance and award interpretation.
- Utilise modern payroll software to streamline processes and reduce errors.
4. Seek expert advice:
Consult with employment law professionals to clarify obligations and implement best practices.
The high-profile underpayment scandals of recent years serve as a stark reminder of the severe financial and reputational consequences that businesses face for wage theft.
By understanding the new laws and taking proactive measures, employers can protect their businesses and ensure fair treatment of their employees.
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