How to Prepare for Wage Theft Laws
Clients frequently say to Akyra that they pay a salary that is above the Award. This is where unintentional underpayment of wages can occur, particularly if the employees work more than a standard 38-hour week Monday to Friday (as is often the case).
In addition, Akyra is frequently asked what can happen if an employer unintentionally underpays its employees.
Our experience is that the majority of employers want to do the right thing but sometimes have difficulty in navigating the terms and conditions of the relevant Modern Award to ensure compliance.
With legislation coming into effect on 1 January 2025 (or the day after the Voluntary Small Business Compliance Code, whichever comes first) that identifies wage theft as a crime, it is more important than ever that employers have a clear understanding of their wage obligations to employees and ensure that they are meeting these commitments.
Tips for Employers
Where a salary is paid to an employee who is covered by a Modern Award, Akyra urges employers to analyse that salary against what the employee would have been paid if paid strictly in accordance with the Award terms and conditions.
If the salary is equal to or more than the Award calculations – happy days! However, if the salary is below the calculations of the Award terms and conditions of employment, the employer will need to increase the salary to be equal to or more than.
Akyra further suggests employers clearly demonstrate to their employees how their salary is equal to or more than the Award terms and conditions, so they understand their salary is compliant. This is a small price for employers to pay as defending a Fair Work claim is always more expensive in terms of time and the stress of responding to / mediation of any such claim.
Understanding the Upcoming Legislation (1 January 2025)
Inadvertent or unintentional underpayments will not be captured by the legislation. The employer must have intended not to pay the required wage or entitlements due in full, or knew it was likely to occur in the ordinary course of events.
However, if an employer was made aware by an employee that the employee suspected they had been underpaid, it may be found to be wage theft if the employer took no action investigate and rectify if necessary. If in response to such an employee query the employer can show it took reasonable precautions to prevent the conduct, then it would likely not be classified as wage theft.
A criminal offence of wage theft under the Fair Work Act 2009 (Cth) (FW Act) will be committed where all the elements below occur:
- The employer is required to pay an amount under the FW Act or an instrument made under the FW Act – e.g. a modern or an enterprise agreement.
- The amount is not an excluded category of payment – e.g. long service leave payments.
- The employer engages in deliberate conduct of an act or omission.
- There is proof beyond reasonable doubt the employer meant to engage in the conduct.
- The act or omission results in a failure to pay the required amount on the day it was due.
- There is proof beyond reasonable doubt the employer meant to bring about (or was aware) the action of underpayment would occur in the ordinary course of events.
Wage theft will be one of absolute liability – i.e. the employer will not have a defence if they rely on that defence being an honest reasonable mistake.
An employer will commit a criminal offence if anyone in the company is acting within their authority or agrees with another person in the company is also acting within their authority.
The fault element of wage theft is the employer’s intention (or state of mind) described in 4 or 6 above; and will be presumed if the company directors authorised or permitted the conduct in 3 and 5, or if the corporate culture of the company encouraged or tolerated such conduct.
Self-Disclosure as a Safe Harbour
To encourage employers to self-disclose conduct which may amount to wage theft, an employer will be able to enter a cooperation agreement with the Fair Work Ombudsman (FWO). Such arrangements will consider a range of factors – e.g. employer’s level of cooperation, their frankness, the gravity of the conduct and their history of compliance.
If an agreement is entered into, the FWO must not refer the conduct to the Director of Public Prosecutions or the Australian Federal Police. However, it does not prevent an inspector from beginning or continuing civil proceedings in relation to the conduct.
The FWO will be able to terminate a cooperation agreement if it is satisfied the employer has contravened a term of the agreement or has given false or misleading information.
A Voluntary Small Business Wage Compliance Code will be introduced. It is intended to be a mechanism available to small businesses to avoid prosecution. However, again, the FWO will still be able to institute civil penalty proceedings.
Criminal Penalties
In addition to civil penalties, wage theft will incur criminal penalties as a deterrent to intentional underpayment of wages.
These criminal penalties will carry a maximum of 10 years’ imprisonment and/or a maximum fine of the greater of:
- three times the amount of the underpayment (if the amount can be determined by the court); or
- 5,000 penalty units ($1.565m) for an individual or 25,000 penalty units ($7.825m) for a body corporate.
Where an employer is found guilty of committing two or more offences that arose out of a course of conduct, they will be taken to be guilty of a single offence for the purposes of sentencing.
The Importance of ‘Getting Ready’
With the criminalisation of wage theft looming, now is the time to put legal safeguards in place to reduce underpayment risks.
The Federal Court recently imposed more than $4m in penalties against a restaurant chain and two of its former officials for systemic wage theft and falsification of records; describing the action as ‘deceitful and unscrupulous’ wage theft.
The offences, brought forward by the Fair Work Ombudsman (FWO), involved deliberately underpaying 17 employees a total of $157,025 between November 2018 and June 2018. Most of the employees were migrant workers predominantly from Indonesia and China and worked across multiple locations in Sydney and Melbourne as casual and full-time employees.
The penalties (which are the second highest penalties every secured by the FWO) imposed included $1.99 million against the restaurant, $1.89 million against the third-party company who employed the workers at the store, $92,232 against the former general manager and $105,084 against the former HR coordinator.
In addition to paying the fine, the organisation was also ordered to backpay the underpaid employees in full, plus interest and superannuation.
This is the type of risk employers face if they intentionally underpay their workforce.
Key Takeaways
In order to prepare for these changes, the team at Akyra suggests the following:
- Develop a comprehensive wage compliance framework that identifies compliance obligations.
- Review and update the classification of current employees under their applicable award or agreement to ensure they are paid correctly.
- Review current payroll systems to ensure they reflect any updates to employee entitlements.
When in doubt in relation to any of the above, Akyra is available to provide professional advice to mitigate this risk to your business. Contact us today for an obligation-free consultation.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
