Navigating the new landscape of wage theft legislation

From 1 January 2025, wage theft is a new criminal offence which targets employers who intentionally underpay wages or entitlements, subject to some limited exceptions. The change is a part of the broader legislative changes in the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth).

In part given the commencement of this new offence, the Fair Work Ombudsman (FWO) has recently released its:

1. Compliance and Enforcement Policy (Policy); and
2. Guide to paying employees correctly and the Voluntary Small Business Wage Compliance Code (Small Business Code).

The criminalisation of wage theft poses significant legal, financial and reputational risks for employers and individuals who intentionally underpay employees. It is important that employers take proactive steps, including considering the Policy and (if applicable) the Small Business Code, to ensure that employees are paid in full and on time.

This article:

1. covers the new criminal offence (including the breadth of ‘intentional’ conduct which may include a culture of non-compliance)
2. provides practical insights from the Policy and Small Business Code to help employers meet the wide range of wage-related obligations; and
3. concludes with an example compliance checklist.

Under the Fair Work Act 2009 (Cth) (Act), an employer commits a criminal underpayment offence if:

• they are required to pay an amount to an employee, including wages, or award or enterprise agreement entitlements such as penalty rates and allowances
• they fail to pay the amount in full on or before the day they are due to be paid to the employee; and
• they intentionally engage in the conduct with the intent that it results in wage theft.

Intentional conduct includes:

• taking an action, such as purposefully paying less than an employee’s minimum entitlements; but also
• failing to take an action, such as purposefully not paying an employee.

Importantly, under the Criminal Code Act 1995 (Cth), intentional conduct by a body corporate can also include failing to create and maintain a corporate culture that requires compliance with relevant legal provisions. Within the context of wage theft, this means that intentional conduct could also include situations where an employer:

• operates a corporate environment that passively tolerates or encourages wage underpayment; or
• becomes aware of a miscalculation or underpayment and continues to engage in such practice.

It is therefore critical for employers to initiate actions designed to proactively and regularly assess the state of their wage compliance and investigate and act quickly to resolve any suspected underpayments. The offence does not apply where the underpayment was accidental, unintentional or a genuine mistake.

There are also ‘related offence provisions’ that allow for the prosecution of persons other than employers that:

• attempt to engage in criminal underpayment
• aid, abet, counsel, procure or incite the commission of criminal underpayment by another; or
• enter into an agreement with two or more persons to commit criminal underpayment.

Like accessorial civil liability provisions under the Act, this extends the operation of these offences to potentially include parent companies, franchisors, managers, HR practitioners or professional advisors (e.g. payroll providers or accountants) that intentionally contribute to underpaying employees.

Given its existing workplace regulatory role, the FWO has the power to conduct investigations of criminal underpayment offences and related offences. However, only the Commonwealth Director of Public Prosecutions (CDPP) or Australian Federal Police (AFP) can commence proceedings. Matters will only be referred to the CDPP or the AFP if the FWO considers that there is sufficient evidence that an offence has been committed.

Penalties

Where a person is convicted of a wage theft offence, the court may impose criminal penalties on the employer and/or other persons proportionate to the significance of the breach and the impact of the breach to the community. The court may impose:

• for a company, a maximum penalty of up to $8.25m or (if the court can ascertain the underpayment amount), up to three times the underpayment amount; or
• for an individual:
  • a maximum of 10 years of imprisonment or a penalty, or both;
  • a maximum penalty of up to $1.65m or (if the court can ascertain the underpayment amount), up to three times the underpayment amount.

These penalties are in addition to the civil penalty provisions that exist within the Act, i.e. there are already significant potential penalties for employers that underpay employees, depending on the nature, extent and circumstances involved.

The FWO can also consider:

• entering into a cooperation agreement with a person who proactively self-reported underpayment conduct to the FWO by making a voluntary, frank and complete disclosure, positively engaged with the FWO, and agreed to facilitate the remedying of the effects of their conduct; or
• whether a small business employer (i.e. fewer than 15 employees) that unintentionally underpaid their employees has complied with the Small Business Code.

The Small Business Code is a legislative declaration made on 6 December 2024 covering small business employers with fewer than 15 employees. The FWO cannot refer a small business for criminal prosecution if the FWO is satisfied that the small business has complied with the Small Business Code. The FWO has released a guide to help understand the Code.

The Small Business Code outlines several factors relevant in assessing whether the underpayment was intentional, including steps the business took to:

• ascertain the correct pay rates and entitlements
• stay up to date with obligations
• consider reliable sources of information
• rectify underpayments promptly; and
• make changes to ensure the underpayment does not occur again.

Whilst small businesses do not have to cover off every factor and no single factor is conclusive, these factors provide a useful checklist for all businesses to follow.

Updated in January 2025, this Policy provides information about how the FWO fulfils its statutory compliance and enforcement powers under the Act. The Policy sets out the factors that the FWO considers when performing their compliance and enforcement functions, as well as insight into the published views of the FWO.

The FWO uses a three-tier regulatory model to determine its compliance and enforcement approach to any allegations, evidence, or suspected instances of non-compliance:

1. voluntary compliance (encouraged approach): where the FWO provides information, education and advice in response to an employer’s request for assistance
2. guided compliance (if required): this may include directing employers or other duty holders to undertake certain specified actions and demonstrate compliance with workplace laws; or
3. enforced compliance (if in the public interest): to uphold its objectives of specific and/or general deterrence, the FWO will commence civil proceedings or refer matters to the CDPP or AFP for criminal prosecution.

The Policy outlines the FWO’s existing powers to:

• investigate wage underpayment allegations
• issue a findings letter, contravention letter, compliance notice or infringement notice
• enter into an enforceable undertaking
• initiate civil proceedings to enforce orders and impose penalties where the FWO considers there is sufficient evidence, and it would be in the public interest, to do so; and
• as noted, refer matters to the CDPP or AFP for criminal prosecution.

From our experience in assisting employers, we note that, in its Policy the FWO:

• describes an employer’s record-keeping and pay slip obligations as ‘the bedrock of compliance’. An employer’s failure to comply with these obligations hinders an employee’s, and the FWO’s, ability to assess whether an employer has complied with their obligations, as well as impeding the efficient resolution of a dispute. This means that where an employer does not have sufficient records, the FWO is likely to take a dim view of the employer’s compliance with other payment-related obligations. We also note that, in failing to keep adequate records, an employer is at a greater disadvantage in seeking to defend an underpayment claim, given the reverse onus of proof in the Act which, in effect, means that if an employer has breached its record keeping obligations and cannot produce the necessary records, they must disprove the allegations of underpayment
• outlines that it is more likely to favourably consider offering an enforceable undertaking to an employer that, among other things, can show that it:
  • agreed to pay interest on wage and superannuation entitlements owed
  • apologised to affected employees (or committed to doing so)
  • fully cooperated with the FWO
  • meaningfully engaged with impacted parties (e.g. employees and their representatives)
  • set up a ‘hotline’ for those impacted to discuss their personal circumstances, or made reasonable attempts to facilitate such a channel of communication
  • invests in its workplace relations and/or pay compliance capability
  • implements advice provided by dedicated workplace relations advisors
  • takes steps to better ensure future compliance; and
  • conducts ongoing audits (either in-house or by independent experts) and specifically calls out sampling a cohort of relevant employees for more in-depth testing and validation.
• reserves its right to issue media statements ‘at any time during the terms of [an] enforceable undertaking if the FWO considers it reasonable and appropriate’. As we have seen, the FWO uses its public presence to put on notice priority industries that demonstrate a more significant risk of non-compliance, or a history of systemic non-compliance; and
• views unintentional underpayments of up to 12 months as not requiring voluntary disclosure, provided that:
  • employees are adequately notified of the underpayment
  • wage remediations are undertaken as soon as practicable; and
  • changes to avoid the error being repeated are implemented.

Whilst the underpayment risks for employers will depend on the size, complexity and nature of their circumstances, as well as their applicable industrial instruments, we consider that the Small Business Code provides a useful high level, starting point for all businesses to consider in seeking to reduce the risk of underpaying employees:

We can help develop a more tailored compliance assessment program for your business to address areas of concern and/or provide management teams with greater comfort that employees are being correctly paid.

PwC can provide a wide range of integrated services to assist you in meeting your employee obligations. Our Workplace Law Team has extensive experience in dealing with the FWO and advising clients on a range of matters related to wage compliance. Our Payroll Advisory, Employment Taxes and Assurance teams unlock a wealth of expertise, including by helping employers develop and improve payroll and compliance systems, and ensuring that such compliance measures are regularly reviewed to assess their effectiveness and are embedded across all of the businesses’ strategic initiatives.