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18 April 2024

New wage theft laws are on the way – here's how HR can prepare

This article was originally published by Sharon Masige for HRD (18 April 2023). 

'Employers really need to be on the front foot when it comes to these types of changes' lawyer says

In 2023, the federal government introduced new legislation that aims to criminalise wage theft.

Under the proposed Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill), companies who conduct intentional wage theft will be subject to a maximum fine of the greater of either:

  • $7.825 million

  • three times the amount of the underpayment. 

For individuals who engage in intentional wage theft, the proposed offence will carry a maximum of 10 years' imprisonment and/or a maximum fine of the greater of either:

  • $1.565 million 

  • three times the amount of the underpayment.

“Previously, we've had consequences of wage theft and we've had civil penalties attached to that,” Linda Mackinlay, partner at Bartier Perry told HRD Australia. “But now we have criminal wage theft.

“Essentially, these new laws are going to criminalise underpayment of wages. And it's all around whether there's an intention to underpay employees. It's not whether it’s an honest mistake or if there are miscalculations - that's not caught by the new wage theft defence. It's all around intention.”

MacKinlay further emphasised the repercussions of wage theft under these new laws.

“What's also quite concerning about these new wage theft provisions is that individuals, if they engage in wage theft, will not only be fined but they could face up to 10 years of imprisonment, which is another really drastic change to the legislation that we've not previously seen,” she said. “It's definitely signalling the intent of the government to crack down on what they see is a really prevalent problem.”

The new laws are expected to be enforced from January 2025 and they also include increasing the penalties for civil wage theft. So how can employers prepare for the new changes?

Civil penalties for wage theft

According to Bartier Perry, the maximum civil penalty for underpaying staff increased on February 27. It means employers – who are not small businesses – could face a penalty of the greater of:

  • 1,500 penalty units ($469,500), previously 300 penalty units or $93,900 or

  • Three times the amount of the penalty

And for serious underpayments, the maximum penalty for employers (who are not small businesses) is the greater of

  • 15,000 penalty units ($4,695,000), up from from 3,000 penalty units or $939,000 or

  • Three times the amount of any associated underpayment

However, the ‘three times’ component will take place once the new wage theft laws commence in 2025.

How HR can stay on top of wage theft

Mackinlay encouraged employers and HR teams to keep on top of the wage theft laws.

“Underpayments, they will happen, and we see that they happen a lot,” she said. “But also, our industrial relations system and complying with all the various laws is challenging, and it changes all the time; it can be difficult. And so that's why employers really need to be on the front foot when it comes to these types of changes, particularly now that we're on notice.”

In recent months, organisations and universities including Optus Retail and Australian Catholic University discovered that they had underpaid staff.

Mackinlay went on to provide tips for employers on how to prepare for the new changes.

“They can identify all applicable industrial laws and instruments that might apply to their workplace,” she said. “And that particularly is for organisations that may operate across multiple industries or have a varied workforce where there's a number of different professions or roles that cross-sect.

Employers also need to understand what the requirements of a modern award that apply or cover employees, Mackinlay said, “because they're the minimum requirements for you to comply with, within your organisation.”

Look at work performed by employees, salary arrangements

Mackinlay advised employers to ensure their employees are correctly classified or graded against the particular modern awards or enterprise agreements.

“Often underpayments can occur when you've got employees that have been incorrectly classified under a modern award, or where, for instance, their status has been incorrectly designated,” she said. “They may, for instance, have been classified as a casual when in fact, they're a part-time employee. We often see that sometimes applicable allowances have also been overlooked so that's important to consider.”

Often, annual salary arrangements that an employer might have in place are missed, Mackinlay said.

“It's important if you do have those types of arrangements in place that you consider them and how they compare to the relevant industrial instrument that that employee might be engaged under.”

Review payroll configurations, training to avoid wage theft

Mackinlay advised employers to review their payroll configurations and conduct regular audits.

“They're the ones that have been developed and implemented for your organisation and you need to ensure that they're also consistent with the industrial instruments,” she said.

“You also need to consider whether your record keeping systems are… accurate and reliable. A big thing is time and attendance records – are they actually accurately recorded? And that includes breaks. That is where you may see some potential underpayments.”

Also, HR should ensure that employees tasked with ensuring wage compliance have the adequate training that they need to understand entitlements and required payments, she said.

“You might have the best system in the world but if you don't have managers who have been adequately trained, that's when you can see that underpayments might occur.”