Senior Associate, Craig Fordham, and Associate Jane Lovett discuss the offence of wage theft.
Introduction
From 1 January 2025, intentional underpayment of employee wages or entitlements ('wage theft') may be a criminal offence.
How the offence applies: transitional arrangements
The wage theft offence under section 327A of the Fair Work Act 2009 (Cth) ('the Act') applies only to conduct occurring after the new law commences, that is, after 1 January 2025.
However, under transitional provisions, if a course of conduct began before that date and continues beyond 1 January 2025, the portion of the conduct occurring after commencement may still be prosecuted under the new criminal provisions.
Wage theft
Previously, employers who underpaid workers faced civil penalties, which included fines and the threat of public scrutiny. In December 2023 the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) was passed and employers were put on notice that deliberate underpayments would soon be a criminal offence. The amendments to the Act came into effect from 1 January 2025.
Section 327A of the Act provides that employer commits a criminal offence if it is required to pay an amount in relation to an employee, it engages in conduct that results in a failure to pay that amount and that the conduct is intentional.
Common situations where wage theft can arise include an employer intentionally underpaying or incorrectly paying an employee what the employee is entitled to under the applicable award, enterprise agreement of the National Employment Standards (NES). These entitlements can include:
- Hourly or annual rates of pay;
- Penalty rates;
- Overtime rates;
- Loading or other allowances;
- Salary sacrifice; and
- Superannuation (if not excepted as detailed below).
Criminal penalties for wage theft are not limited to the employing entity alone – they can extend to various individuals involved. In addition to directors or executives being held accountable, lower-level employees, such as those in payroll or human resources may also face liability.
Whilst there is a requirement for the conduct to be intentional for a criminal penalty to be imposed, if an employer discovers that an honest mistake has been made that has resulted in an underpayment, a failure to rectify it once aware could result in prosecution.
Exceptions
Although wage theft is now a criminal offence, exceptions to apply for small businesses and specific categories of employers outside of Western Australia. Small businesses who have complied with the Voluntary Small Business Wage Compliance Code cannot be referred for prosecution.
There are also exceptions for the criminal offence provision for employers that apply to the following:
- Employees employed by sole traders, partnerships, other incorporated entities or non-trading corporations in New South Wales, South Australia, Queensland, Tasmania and Victoria;
- Victorian state government employees; and
- Tasmanian local government employees.
Whilst these employers can still commit a criminal offence for a failure to pay wages and most entitlements, there are exceptions for superannuation contributions, long service leave and other types of leave.
Penalties
The Fair Work Ombudsman (FWO) investigates wage theft and can refer matters to Commonwealth Director of Public Prosecutions or the Australian Federal Police, who will then decide whether to prosecute.
The maximum penalties for employers who are found to have committed an offence are:
For individuals
- A term of imprisonment of 10 years and/or a fine not exceeding the amounts below.
- 3 x the underpayment amount or $1,650,000, whichever is greater.
- If a court cannot determine the underpayment amount, the maximum penalty is $1,650,000.
For companies
- 3 x the underpayment amount or $8,250,000, whichever is greater.
- If the court cannot determine the underpayment amount, the maximum penalty is $8,250,000.
In determining the appropriate penalty, the Court will take numerous factors into account1, including the personal circumstances of the victim, any loss suffered and any victim impact statement. The Court will also take into account the circumstances of the offending, whether the employer showed any contrition, any cooperation with law enforcement agencies and the need for general deterrence.
How to protect your business
It is important for businesses to familiarise themselves with what their employees are entitled to and to seek prompt legal advice if an underpayment is suspected.
Steps you can take to minimise an accidental underpayment, include:
- Familiarising yourself with the specific award, agreement or employment contract that your employees are working under and making a note of what your employees are entitled to, including any allowances, loading, superannuation, salary sacrifice and penalties.
- If no award or agreement applies, reviewing the NES to ensure that your employees are receiving all benefits they are entitled to and annually reviewing employees pay to ensure that it does not fall below the National Minimum Wage.
- For small businesses, reviewing the Small Business Wage Compliance Code published by the Fair Work Ombudsman to ensure compliance.
- If you have engaged independent contractors, carefully review the nature of that relationship to determine whether the contractor actually falls into the category of an employee. If there is any uncertainty as to this, it is important to seek legal advice.
Cooperation agreements
If an employer discovers an underpayment or is concerned that it has engaged in conduct that could amount to a criminal offence under the Act, there are steps it can take to avoid criminal penalties.
An employer has the option of making a voluntary report to the FWO and, at the same time, asking to enter into a cooperation agreement. A cooperation agreement is a written agreement that makes admissions to the conduct, details how the conduct will be remedied and how the employer will be complaint in the future.2
If a cooperation agreement has been entered into, the FWO cannot refer the matter on to be dealt with as a criminal offence. However, it does not provide protection from civil proceedings under the Act.
Conclusion
Whilst the criminalisation of wage theft is a positive move for employees, it has created a ripple effect that can result in criminal penalties for individuals ranging from business owners or senior executives to staff in payroll or accounting.
Footnotes
1 'A guide to cooperation agreements', the
Fair Work Ombudsman
1 Ibid
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
