From January 2025, new federal laws criminalised the intentional underpayment of wages or entitlements. While honest mistakes cannot be charged as a criminal offence, businesses must be diligent in their conduct to avoid potential claims.
What is Wage Theft?
Wage theft is the intentional underpayment of an employee by an employer. Underpayment can take many forms, including:
- Underpayment of minimum wages
- Failure to pay overtime, penalty rates, or superannuation
- Sham contracting arrangements
- Record-keeping manipulation
What is Considered a Criminal Offence?
Honest mistakes that may result in underpayment or failure to pay an amount are not prosecutable under this code, so long as the mistake is resolved promptly.
An employer (individual or company) may commit a criminal offence where they:
- were required to pay an amount:
- to an employee, such as wages or paid leave entitlements
- on behalf of the employee, or for their benefit, such as superannuation or a salary sacrifice arrangement, and
- have intentionally done something that results in those amounts not being paid on or before the day they were due.
If underpayment is reported, the Fair Work Ombudsman can
- Investigate suspected criminal underpayment offences
- Refer suitable matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for consideration and possible criminal prosecution.
Penalties and Consequences for Wage Theft
If a company commits wage theft:
- If the court can determine the amount of the employer’s underpayment, the maximum fine will be the higher of:
- 3 times the amount of the underpayment
- $8.25 million.
- If the court cannot determine the amount of the underpayment, the maximum fine is $8.25 million.
If an individual commits wage theft:
- The court can impose a maximum of 10 years in prison or a fine, or both.
- If the court can determine the amount of the employer’s underpayment, the maximum fine will be the higher of:
- 3 times the amount of the underpayment
- $1.65 million.
- If the court cannot determine the underpayment, the maximum fine is $1.65 million.
How to Minimise the Risk of Criminal Prosecution
- One of the best ways for a business to reduce its risk of being accused of wage theft is by reviewing and becoming familiar with Voluntary Small Business Wage Compliance Code and the Guide to Paying Employees Correctly and the Voluntary Small Business Wage Compliance Code, both produced by the Fair Work Ombudsman (FWO). The code and guide provide examples of the best steps that businesses can take to ensure they are making their best efforts to correctly pay employees. Examples include:
- making reasonable efforts to ascertain correct rates of pay and entitlements for employees;
- considering and relying on information about employees that the employer reasonably believes is accurate in relation to the payment of wages and entitlements; and
- seeking information in relation to the payment of wages and entitlements.
When following these best practices, incidents of underpayment are likely the product of an honest mistake, which will not be pursued as a criminal offence.
- Businesses can also protect themselves from criminal prosecution by entering into a cooperation agreement. Cooperation agreements are a method of self-reporting intentional underpayments to the FWO. If a business demonstrates a willingness to cooperate and remedy pay compliance issues, the FWO may consider entering into a cooperation agreement regarding conduct that was self-reported to it. This agreement precludes the FWO from referring the employer for criminal prosecution. However, businesses should be aware that
- A cooperation agreement with the FWO is discretionary and requires negotiation.
- Employers must first self-report through an online form and establish eligibility.
- If eligible, they must provide further information (e.g., records and witness statements) to substantiate their disclosure.
- This information can be used in civil or criminal proceedings if no agreement is reached or it is later withdrawn.
- A cooperation agreement (or small business Code compliance) may protect against criminal sanctions, but not against civil proceedings by the FWO or other parties (e.g., unions or litigation funders).
Our Services
At OpenLegal, we are equipped with the skills and knowledge to ensure that your business is operating in accordance with wage theft laws. By working with a professional to take preventative measures, your business can avoid potential criminal and civil liabilities for underpayment.
To learn more about how to protect your business, contact OpenLegal at enquiries@openlegal.com.au or 1300 937 574 for a confidential consultation to discuss your circumstances and the best path forward.
By Intern Hope Jordan at OpenLegal
