Wage theft is now a federal crime under amendments to the Fair
Work Act 2009 (Cth) that commenced on 1 January 2025. Employers caught intentionally underpaying
staff now risk significant fines, and in the case of individuals, imprisonment,
as a result of the changes.
The significance of the changes
The introduction of national wage theft laws means that intentionally underpaying employees their minimum employment entitlements is a crime that can be treated in a similar manner to traditional property and financial crimes such as theft and fraud-related offences.
Significantly, for the first time at a national level, individuals who either intentionally underpay their employees, or are complicit in the intentional underpayment (e.g. directors or managers of a corporate employer) may face imprisonment for up to ten years.
In addition to imprisonment for individuals, the amendments mean that:
- companies and other bodies corporate face fines of up to $8.25 million, or three times the amount of the underpayment (whichever is greater).
- individuals face fines of up to $1.65 million, or three times the amount of the underpayment (whichever is greater).
Importantly, under the Commonwealth Criminal Code, intentionality for a body corporate can be established where it is proven that the body corporate had a corporate culture that directed, encouraged, tolerated or led to non-compliance with the law, or where it is proven that the body corporate failed to create and maintain a corporate culture that required compliance with the law. This means that companies may be guilty of criminal wage theft where Boards and executives fail to establish a culture of compliance, without it being necessary to establish that the Board or executives were aware of the specific underpayment.
How the new regime will operate
The Fair Work Ombudsman is responsible for investigating suspected criminal underpayment of employment entitlements. Where the Ombudsman has sufficient evidence to form the view that criminal underpayment has occurred, the Ombudsman can refer the matter to the Commonwealth Director of Public Prosecutions (which conducts criminal prosecutions) or the Australian Federal Police.
Safe Harbour provisions for small businesses
The Act provides a safe harbour for small businesses who comply with the Voluntary Small Business Wage Compliance Code declared by the Minister. Where the Ombudsman is satisfied that a small business (a business with less than 15 employees) has complied with the Code, the Ombudsman must not refer suspected underpayments for criminal prosecution.
The Code provides guidance on actions that, if undertaken by a small business, may indicate that an underpayment was not intentional. This includes such matters as the employer:
- Taking reasonable efforts to ascertain the correct pay rates.
- Relying on information from the Ombudsman, employer associations or other reliable sources of information in determining pay rates.
- Taking proactive steps to keep up to date with pay rates.
- Taking steps to promptly rectify underpayments once identified.
Whilst compliance with the Code will not prevent a civil claim, it will assist with avoiding being the subject of a criminal prosecution.
Cooperation agreements
An employer or other person (such as a director or manager) who may have intentionally engaged in underpaying an employee may seek to engage with the Ombudsman by disclosing the matter and seeking to enter a cooperation agreement with the Ombudsman.
If the Ombudsman agrees to enter a cooperation agreement, which may include a range of conditions, the Ombudsman must not refer the employer or other person who made the report for criminal prosecution with respect to those matters covered by the agreement.
The difference between the criminal and civil regimes
The criminal wage theft regime operates alongside the existing civil penalty regime, which continues to apply.
The civil regime will continue to be important.
- There is no requirement in a civil proceeding to establish that an employer deliberately underpaid an employee. An employer can be exposed to civil penalties for underpaying an employee even if the non-compliance was accidental (though accessories such as directors, managers and payroll officers need to be knowingly involved to be personally liable).
- The standard of proof is lower in a civil proceeding. In a criminal proceeding, the prosecution would need to establish both the underpayment and the required criminal intent beyond reasonable doubt. Civil claims, by contrast, only need to be established on the balance of probabilities.
- Civil proceedings can be brought by the Ombudsman, but they can also be brought by affected employees and by unions.
We expect that the Ombudsman will continue to use the civil courts to recover underpayments and secure civil penalties against employers as its primary litigation-based enforcement activity, with the Ombudsman referring employers for criminal prosecution when it can establish intent to the necessary standard.
Key Takeaways
Employers need to be vigilant to ensure that they are paying employees correctly, and that they can demonstrate that they have taken steps to ensure compliance with workplace laws. Intentionally failing to ensure that employees are paid correctly can have very serious consequences.
Companies must create and maintain a culture that fosters compliance with workplace law. This will generally include having policies and procedures in place to ensure that employees are correctly classified and paid, and having processes to review payroll systems and address any issues that are identified.
Employers who believe that they may have underpaid employees should seek legal advice immediately. Even where an underpayment is initially unintentional, the failure to address a payroll issue in a timely manner after it has been identified may reach the threshold of intentionality under the new wage theft laws.
Employers should also note that legal advice, and audits conducted by lawyers for the purposes of giving advice or defending legal claims, may be subject to client legal privilege. The existence of privilege over advice and audits affords employers the opportunity to consider how best to address issues, without risking the advice or the results of the audit being obtained by external parties in a subsequent investigation or prosecution.
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