The Closing Loopholes Bill is a big deal for Australia’s workplace rules.

Part 1 of the Bill has already been passed by Parliament, with some provisions already in effect and others to come into play later in the year.

One of the provisions that has been passed and will be brought in before 1 January 2025 (but the exact date has not yet been set) relates to a new offence for intentionally underpaying staff.

Criminalisation of wage theft: A new dawn for workers’ rights in Australia

Combatting wage theft – ie the act of deliberately underpaying staff – has gained increased attention in recent years, leading to legislative changes that mark a significant shift in the fight against exploitative employment practices. One of the most notable developments is the criminalization of wage theft, a move that aims to hold unscrupulous employers accountable and protect vulnerable workers.

Wage theft is already a criminal offence in some states and territories, but the new provisions in the Closing Loopholes Bill will mean that all employers covered by the Fair Work Act can be subject to criminal proceedings, regardless of where they are in Australia.

What is wage theft?

Before delving into the criminalization aspect, it’s crucial to understand what constitutes wage theft. Wage theft occurs when employers deliberately underpay or fail to pay their employees the wages and entitlements they are entitled to under the law (ie the Fair Work Act 2009 or other industrial instrument like an Enterprise Agreement or Modern Award). This can include withholding superannuation contributions, leave entitlements, penalty rates, or simply paying below the minimum wage.

These provisions are not about targeting employers who make honest mistakes or try to do the right thing. They are about targeting the small minority of employers who knowingly breach workplace laws.

The need for criminalisation

For many years, civil penalties and fines were the primary mechanisms used to address wage theft in Australia. While these measures provided some deterrent, they often fell short of delivering justice to affected workers and driving change in how (the small proportion of) dishonest employers conduct business. Oftentimes the financial penalties associated with wage theft were not enough of a deterrent for certain businesses to proactively reconsider their HR practices, and in some instances were seen as simply part of the ‘cost’ of running a business – allowing some employers to pay the penalty notice but continue their exploitative practices.

Recognising these shortcomings, the passing of the Closing Loopholes Bill has resulted in the decisive action to criminalise wage theft nationally. By making wage theft a criminal offence, authorities can pursue more severe penalties, including imprisonment for the most egregious cases. This shift not only enhances deterrence but also sends a clear message that wage theft will not be tolerated in any form.

Implications for employers

As noted above, the new provisions should not impact the vast majority of employers, or those that underpay entitlements as a result of a honest mistake.

The criminalization of wage theft will, however, have significant implications for employers across Australia who deliberately underpay entitlements. No longer will such employers be able to rely on (relatively) minor fines or civil penalties as a cost of doing business. Instead, such employers must ensure compliance with all relevant employment laws and regulations, or face severe consequences. This includes maintaining accurate records, paying employees correctly, and addressing any wage-related issues promptly.

Moreover, the criminalization of wage theft aims to promote a culture of accountability within organizations. Employers must prioritize compliant treatment of their workforce, recognizing that any deliberate deviation from legal standards could result in criminal charges. This shift towards greater accountability benefits not only workers but also responsible employers who adhere to the law and uphold ethical business practices, by creating a more level playing field between competitive businesses.

For employers found guilty of wage theft under forthcoming changes to the Fair Work Act, the potential consequences include a maximum imprisonment term of 10 years, and fines reaching up to $7.8 million – or three times the underpaid amount if it surpasses the specified maximum fine.

This marks a significant shift from how financial penalties are usually calculated, by allowing the penalty to be directly proportionate to the extent of the underpayment.

Employers who make genuine errors will not face criminal penalties. There will be options for employers to self-disclose or self-report underpayments to the Fair Work Ombudsman and, so long as they make reasonable efforts to rectify the underpayments, they will be able to avoid criminal prosecutions.

On top of this, Government will be producing a Voluntary Small Business Wage Compliance Code before the new provisions commence – this is likely to shield smaller employers from the new sanctions on wage theft if they comply with the Code.

What can I do as an employer to ensure I am paying employees compliantly?

As an employer you may be concerned about the struggles of navigating complex employment laws and regulations.

If you are concerned about whether you are paying your employees correctly, it’s critical to ensure you have the right resources and support to help you understand your obligations and navigate the compliance requirements effectively. We set out our 10 top tips to do this below.

10 Steps to ensure compliance:

1. National Employment Standards (NES)

Familiarize yourself with the National Employment Standards, which outline the minimum employment conditions in Australia. These standards cover various aspects, including maximum weekly hours, leave entitlements, and notice of termination.

2. Minimum Wages

Be aware of minimum wage requirements. The Fair Work Commission regularly reviews and sets the national minimum wage, which applies to all employees who are not covered by a Modern Award or Enterprise Agreement.

3. Modern Awards

Determine whether your employees fall under any Modern Award (the majority of employees in Australia do!). Modern Awards set out minimum pay rates (different to the national minimum wage) and other minimum working conditions and employment standards for specific industries and occupations. You need to ensure that your employees are classified correctly under the relevant award.

4. Enterprise Agreements

If your business has an enterprise agreement in place, ensure that you ae compliant with its terms. Enterprise Agreements are negotiated agreements between employers and employees, that replace the effect of any relevant modern award and set out terms and conditions of employment.

5. Penalty Rates

For employees covered by Modern Awards and Enterprise Agreements, you will need to understand your obligations to pay higher “penalty” rates for overtime, weekend work, and public holiday work. Different rates may apply during these times, and its crucial to calculate and pay them correctly. If you are paying a salary or higher rate of pay to absorb these entitlements, you should ensure this is in fact set high enough to encompass these payments and that this arrangement is properly documented.

6. Allowances and loadings

Modern Awards and Enterprise Agreements also provide for various mandatory compulsory allowances and loadings (eg a meal allowance for working long hours, rates to paid when travelling for work, etc). All Modern Awards require permanent employees to be paid a an annual leave loading (a higher rate of pay – usually an extra 17.5% – when they take annual leave. As a above, if you are paying a salary or higher rate of pay to absorb these entitlements, you should ensure this is in fact set high enough and there is proper documentation in place.

 7. Superannuation

Ensure you are making the correct contributions to your employees’ superannuation funds. The minimum is currently 11% (as at January 2024), however, notably this is set to increase yearly by 0.5% until the superannuation guarantee rate reaches 12% in July 2025.

8. Record Keeping

Maintaining accurate and up-to-date records of employee’s worked hours, leave taken, and other relevant information is key. Good record-keeping practices are essential for compliance and can help in the event of an audit or dispute.

9. Fair Work Ombudsman

The Fair Work Ombudsman is a government agency that provides information and resources on Employment Laws. They offer a number of resources around workplace compliance, and include links to all award pay guides and modern award pages.

10. Seek professional advice!

Consider seeking advice from qualified HR Professionals (like us to ensure your payroll processes are in line with Australian employment laws. At Employment Innovations we can help you determine what Modern Award is likely to apply to your employees and as well as providing HR and workplace advice to support your business. You should also make sure your business is regularly reviewing and updating your knowledge of employment laws, as they may change over time. Staying informed and seeking professional advice when needed will help you ensure that you are paying your employees correctly.

Need further help?

If you need assistance understanding your employees entitlements or navigating your responsibilities as employer, reach out to our team to see how HR Connect can assist you and your business.

Disclaimer

The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact HR Connect for advice.

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