This insight was originally published on RemCheck here.
As you may know, new wage theft laws are commencing in January 2025.
Given that the term “wage theft” has been used colloquially for many years now, some observers may be confused as to what the new laws actually relate to.
In short, the existing legal framework didn’t specifically apply to “theft” at all – underpayments of wages have been dealt with via civil remedy provisions of the Fair Work Act 2009 (Cth) (“Act”).
However, with the Fair Work Ombudsman (“FWO”) recovering more than $1 billion in unpaid wages and entitlements in recent years, the laws in this area are escalating to address the problem, and instances of true wage theft will constitute a criminal offence from next year.
We explain the background to this development further below.
Existing Underpayment Laws
Original Laws
The Act requires employers to pay their employees for the performance of work in full, in money and at least monthly. This has been a long-standing feature of employment legislation. Awards and enterprise agreements also set industry/job specific rules regarding the payment of wages.
Intention is irrelevant to establishing an underpayment under the original laws, which have been applied to innocent mistakes through to deliberate conduct.
Personal liability can attach to a person who is “involved in” a contravention. Directors, executives, HR managers and even third-party advisers have found themselves personally named in underpayment claims as a result.
Employers found to have underpaid their staff in breach of the original laws are liable for back-payments and civil penalties. These penalties have increased significantly in recent years, with the current maximums being:
$469,500 per contravention for employers with 15+ employees;
$93,900 per contravention for small business employers; and
$18,870 per contravention by individuals involved in a breach.
Next year, the civil penalties under the original laws will increase again for employers with 15+ employees, and the maximum penalty will be the greater of $469,500 or 3x the underpayment amount.
Serious Contraventions
When it appeared that the original laws were perhaps not having the desired impact on employers, with the FWO’s recovery amounts increasing each year, the Act was amended in 2017 to include a new category of “serious contraventions”.
Such contraventions attract 10x the maximum penalties which apply under the original laws.
Initially, serious contraventions arose in relation to deliberate underpayments committed knowingly and as part of a systematic pattern of conduct.
However, as of 27 February 2024, the threshold has changed and now covers conduct committed knowingly or recklessly. This new focus on reckless behaviour means that employers are exposed to these much higher penalties where it is evident that they have not paid proper attention to their wage obligations.
Currently, the maximum penalty applicable to a serious contravention is $4.695M per contravention by an employer with 15+ employees.
The New Wage Theft Laws
From January 2025, wage theft will arise where an employer intentionally engages in conduct which results in a failure to pay an employee an amount due to them.
Contraventions will attract a maximum penalty of:
for employers, $7.825M or 3x the underpayment amount; and
for individuals, 10 years in prison, $1.56M or 3x the underpayment amount.
Inadvertent errors will not be captured by the new wage theft laws – it is intentional conduct that is under the spotlight here. This will involve an analysis of an employer’s culture towards wage compliance, which we will discuss in Part 2 of this series.
The FWO will be responsible for investigating potential wage theft and then deciding whether to refer a matter to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for prosecution.
While the new laws include safe harbour provisions, which encourage employers to self-disclose potential wage theft issues to the FWO in hope of entering into a cooperation agreement rather than being prosecuted, the FWO will have complete discretion as to whether it decides to go down this path.
Key Take Aways
The new wage theft laws represent a significant escalation of the legal framework pertaining to wage compliance – underpayments of wages are about to become a criminal matter in some instances.
In this series of Insights, we will take you through how liability can be established under the new laws, as well as the steps you can start taking now to ensure you are ready to defend a claim of wage theft and are paying your staff correctly.
Keep an eye out for Part 2 next month!
Cowell Clarke is pleased to offer its RemCheck service to organisations that wish to obtain peace of mind by confirming their payroll compliance. Our Employment & Workplace Relations Team can also provide advice should you have any queries or concerns. Contact Cassie Burfoot, Director, or Emily Gray, Senior Associate, for further information.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.