From 1 January 2025 significant changes to payroll regulations in Australia have taken effect. The new regulations include the criminalisation of intentional wage underpayments, with severe penalties for employers found guilty. The new offence and civil penalties are part of several changes to workplace laws introduced under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) and Fair Work Legislation Amendment (Closing Loopholes) Act 2024 (Cth).
Employers will commit an offence if:
- They are required to pay an amount to an employee (such as wages), on behalf of or for the benefit of an employee (such as Superannuation Guarantee) under the Fair Work Act, or the applicable industrial instrument, and/or
- They intentionally engage in conduct that results in their failure to pay those amounts to or for the employee in full, on or before the day they are due for payment.
Under the newly introduced legislation, employers or individuals must demonstrate intent regarding wage payments. If an underpayment (or failure to pay altogether) was accidental, unintentional, or due to a genuine mistake, criminal liability will not apply.
As a result of the changes, The Fair Work Ombudsman is now empowered to investigate possible wage theft offences. However, any prosecutions will be carried out by the Commonwealth Director of Public Prosecutions or the Australian Federal Police.
To protect your reputation and avoid costly efforts to rectify, it’s essential to make sure you’re operating your business correctly. A better understanding of the new criminalisation penalties can also help business Directors become aware of their personal liability and respond appropriately to any adverse legal actions.
It’s important to note that certain employers are exempt from the new wage theft legislation, including employees in New South Wales, South Australia, Queensland, Tasmania and Victoria who are employed by sole traders, partnerships, other unincorporated entities, or nontrading corporations. The new legislation does also not capture most Victorian state government employees, and Tasmanian local government employees.
Instances which may lead to an underpayment
At Nexia, we have we have acted for clients across several scenarios. In addition to our experience, our research into high profile cases highlights several high-risk events which may lead to an underpayment, for example:
- Most awards are very complex and in many cases, there has been basic misinterpretation of clauses relating to shift allowances, overtime payments (particularly around minimum breaks between shifts), penalty rates, loading and increments in employee grades based on time in the position;
- Enterprise Agreements have been renegotiated, or they have been incorrectly entered into your payroll system by inexperienced staff;
- Incorrect record of hours worked resulting to incorrect application of pay rates;
- Change in payroll systems and pay elements have been flagged incorrectly for the relevant employment tax considerations;
- No formal salary and performance review process undertaken to evaluate the employee’s position or classification level if they are in accordance with the Enterprise Agreement; and
- Industries where sub-contractors, vulnerable and migrant workers are engaged.
Detecting underpayments
An effective way to detect an underpayment is to conduct regular internal compliance reviews of the current payroll systems and processes. These reviews can be conducted as part of the internal governance infrastructure and on an annual basis. In addition to salary and performance reviews, it can be a good idea to include a review of how the awards or Enterprise Agreements that apply to the workforce are implemented into the payroll system.
For small business employers (with less than 15 employees) we recommend employers review and comply with the Voluntary Small Business Wage Compliance Code.
What are the penalties?
Maximum penalties for committing each criminal underpayment offence (or related offence) are as follows.
Note: value of 1 penalty unit is $300 as of 7 November 2024.
What to do if you suspect a regulation breach
Being accountable, approachable and prepared are key. This can help ensure all staff feel connected and informed as they are often the most affected from any underpayments. Open up clear lines of communications as you plan your path to rectify. This may include informing and negotiation with the Unions and/or the Fair Work Ombudsman. By taking proactive steps, organisations can manage their risks associated with any non-compliance.
What to expect
When you suspect or detect an underpayment of wages, it is often a very labour intensive exercise to really understand if there has in fact been an underpayment and if so, the extent of the underpayment. Through the court proceedings, underpaid employees can seek to recover the underpayment of wages for up to six years after the amount became due and payable. Along with the underpaid wages, there are other considerations required which may include superannuation guarantee, payroll tax, workers compensation and PAYG Withholding.
Next steps
If you would like reassurance that you are paying your employees correctly, to provide comfort to your Board or to protect your Directors, please reach out to your local Nexia Edwards Marshall NT advisor. We can help interpret and understand if there has been an underpayment and if so, help you understand the impact. Our team will be with you every step of the way providing assurance and guidance on communication to your employees and other stakeholders such as Unions, if necessary.
