In a February bulletin, we outlined the new laws that create corporate criminal liability for underpayment of wages, which are expected to commence on 1 January 2025 or the day after the Voluntary Small Business Wage Compliance Code is first declared by the Minister for Employment and Workplace Relations.

In this bulletin, we take a deep dive into the elements of the offence, and explain about self-disclosure and steps you should be taking to prepare.

When will a company commit wage theft?

The criminal offence of wage theft under the Fair Work Act 2009 (Cth) (FW Act) will be committed if all the following occur:

1. 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.
2. The amount is not an excluded category of payment, e.g. long service leave payments are excluded.
3. The employer engages in conduct, i.e. an act or omission.
4. There is proof beyond reasonable doubt that the employer meant to engage in the conduct.
5. The act or omission results in a failure to pay the required amount on the day it was due.
6. There is proof beyond reasonable doubt that the employer meant to bring it about, or was aware that it will occur in the ordinary course of events.

The wage theft offence will be one of absolute liability. This means the employer will not have a defence on the basis that it underpaid the employee by reason of honest reasonable mistake.

An employer will commit the criminal offence if an officer, employee or agent of the company acting within their authority does the above with the agreement or consent of the directors or another officer, employee or agent of the company also acting within their authority. The fault element of wage theft is the intention, or state of mind, of the employer 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.

In practice, inadvertent or unintentional underpayments will not be captured by the offence. 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. Additionally, if an employer was made aware by an employee that they suspected they had been underpaid, and the employer took no action, then that may constitute wage theft. However, it won’t arise if the employer can show it took reasonable precautions to prevent the 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). The FWO will consider a range of factors before entering into an agreement, including the 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 that the employer has contravened a term of the agreement, or has given false or misleading information.

The Minister is set to introduce the Voluntary Small Business Wage Compliance Code, which 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 to encourage compliance and deter intentional underpayment by employers.

The criminal penalties for wage theft 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 ($1,565,000) for an individual or 25,000 penalty units ($7,825,000) 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. 

4 ways for employers to prepare

1. Consider developing a comprehensive wage compliance framework that identifies compliance obligations.
2. Review and update the classification of current employees under their applicable award or agreement to ensure they are paid correctly.
3. Review current payroll systems to ensure they reflect any updates to employee entitlements.
4. When in doubt as to the classification of employees or potential underpayment, seek considered legal advice.