Understanding the new wage theft laws
New laws that came into effect on 1 January 2025 means wage theft is now a criminal offence.
In its simplest term, wage theft is when an employer doesn’t pay correct wages, follow the applicable modern award or does not pay related entitlements. This could be overtime, public holiday or penalty rates, award allowances, or superannuation contributions.
Underpayment of wages is unfortunately common in Australia. Some of the main industries for wage theft include hospitality, agriculture and food harvesting, retail, transport and logistics and cleaning service employees.
The term wage theft indicates employers are stealing from employees, however wage theft is not always malicious or intentional. There are two types of wage theft in Australia- deliberate theft and accidental.
It’s critical employers and business owners know the latest legislation around wage theft, so they know how to be compliant and avoid severe penalties, which could include a prison sentence.
Wage theft legislation in Australia
The Fair Work Act 2009 has provisions related to underpayments, such as failure to pay an employee for the full work performed or failure to provide payslips.
Intentional underpayment of wages by employers is now a criminal offence.
- Employers will have found to commit an offence if they’re required to pay an amount to an employee (wages), or on behalf of or for the benefit of an employee (superannuation) under the Fair Work Act or an industrial instrument
- Employers will have committed an offence if they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.
The new offence only applies to intentional underpayments that happen after these provisions take effect. This includes where they’re part of a course of conduct that started before the provisions take effect.
There are exceptions to these cases. These provisions don’t apply to certain employees for:
- Superannuation contributions
- Payment for taking long service leave payments
- Payment for taking leave connected with being victim of a crime
- Payment for taking jury duty leave or for emergency service duties
Penalties for wage theft
The following penalties apply to companies who unintentionally underpay their employees:
- If the court can determine underpayment, the greater of 3 times the amount of underpayment and $7.825 million, or
- If the court can’t determine the underpayment, $7.825 million
The following penalties will apply to individuals:
- Maximum of 10 years in prison
- If the court can determine underpayment, the greater of 3 times the amount of underpayment and $1.565 million or
- If the court can’t determine the underpayment, $1.565 million
Compliance for small businesses
A Voluntary Small Business Wage Compliance Code (Voluntary Code) will be established. Compliance with the Voluntary Code means a small business (fewer than 15 employees) won’t be criminally prosecuted if they underpay their employees. Information on the Voluntary Code is on the Fair Work Ombudsman website
Tips for dealing with underpayments
Underpayments are costly mistakes for businesses and employers. If you have miscalculated and underpaid an employee, there are ways to rectify the error.
Once you have identified an underpayment, you need to calculate the amount internally, or you can enlist the help of a forensic accountant or employment lawyer. You will then need to back pay your employees as soon as possible and hold an internal audit to avoid further mistakes or non-compliance.
Having robust processes in place can prevent you from making mistakes such as underpayments or overpayments. Payroll systems, underpayment policies, and resilient resources can protect you from risks and penalties.
With the changes in legislation around wage theft, employers and business owners need to stay on top of their obligations. Knowing the rules and regulations around underpayments and overpayments is not enough. You should also have a strategy to deal with any occurrences.
There are other things to consider as well. What do you know about withholding pay? Is there a system in place you can use when overpayments occur? Do you have an underpayment policy?
Peninsula provides thousands of small businesses with expert advice on HR and WHS issues including wage compliance. Call now for free initial advice.
View all blogs