Criminalising Intentional Wage Underpayments: What it means for businesses

Commencing January 1, 2025, Australian businesses will be subject to the further workplace changes as a result of The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth), particularly concerning the intentional underpayment of wages.

These changes, aimed at protecting employee rights, will result in harsh new penalties, making it a criminal offence for employers who deliberately underpay their workers.

As businesses prepare for this new legal landscape, it is crucial to understand the implications and ensure compliance to avoid severe penalties.

Under the revised Fair Work Act 2009 (Cth), Employers will commit a criminal offence if they intentionally fail to pay employees the amounts owed under the Fair Work Act or applicable industrial instrument, including wages and superannuation on or before the date they are due to be paid.

The offence applies only to underpayments occurring after the provisions take effect, even if the conduct began earlier than 1 January 2025.

With the focus strictly on intentional misconduct, where it is determined that employers have unintentionally underpaid their employees or made payment errors by mistake, they will not subject to these criminal penalties.

The new amendments encourage employers to self-report potential wage theft through “safe haven” provisions. These provisions allow employers to disclose their conduct to the Fair Work Ombudsman (FWO) and enter into a “cooperation agreement.”  If such an agreement is made, the FWO may refrain from referring the matter to the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP) for prosecution. However, it’s important to note that the FWO retains full discretion over whether to offer a cooperation agreement and entering into one does not shield the employer from civil proceedings.

The penalties for non-compliance are severe and vary depending on whether the underpayment is by a company or an individual:

• For Companies: The penalty is the greater of three times the underpayment amount or up to $7.825 million. If the underpayment amount cannot be determined, the default penalty is $7.825 million.
• For Individuals: In the most severe cases individuals face a maximum of 10 years in prison. Financial penalties include the greater of three times the underpayment amount or $1.565 If the underpayment amount cannot be determined, the default penalty is $1.565 million.

The Fair Work Ombudsman will be responsible for investigating suspected underpayment offences, ensuring that the new laws are enforced. In the absence of any “cooperation agreement” the FWO may refer the conduct to the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP) for prosecution.

These upcoming changes represent a significant shift in how wage compliance is regulated in Australia. For businesses, the implications are far-reaching:

1. Increased Compliance Costs: Companies will need to invest in stronger payroll systems and processes to ensure accurate and timely payment of wages and superannuation. Regular audits and reviews will become essential to avoid potential legal risks.
2. Risk of Severe Penalties: The financial penalties for non-compliance are substantial. Businesses must be diligent in adhering to wage laws to avoid criminal charges and the associated penalties.
3. Greater Scrutiny: With the Fair Work Ombudsman actively investigating underpayment cases, businesses can expect increased scrutiny of their payroll practices. Proactive compliance measures will be necessary to prevent investigations.
4. Reputation Management: Beyond legal penalties, businesses found guilty of intentional underpayment may suffer significant reputational damage, affecting customer trust and engagement, and employee morale. Ensuring transparent and fair wage practices are essential in maintaining a positive brand image.

The criminalisation of intentional wage underpayments underscores the Australian government’s commitment to protecting workers’ rights. For businesses, this change necessitates a thorough review of payroll practices and an investment in compliance infrastructure.

By taking proactive steps now, companies can safeguard against the severe penalties coming into effect in 2025 and ensure they remain compliant with the evolving legal landscape.

If you would like to know more about your responsibility as an employer and the rules that apply, please contact us at hello@mapien.com.au and a Mapien Workplace Strategist will be in touch within 24 hours.