“Criminal sanctions may have an important deterrent effect, but they’re not going to alter the vast majority of cases of underpayment of wages, often from a lack of understanding of awards and enterprise agreement terms,” writes industrial law expert RICHARD CALVER. 

From 1 January, the Fair Work Act makes it a criminal offence to intentionally underpay an employee, so-called wage theft. 

There are also increased civil penalties for employers who are found to have unintentionally underpaid an employee. 

These changes were part of the staggered introduction of a large number of changes to employment law brought about by the “Closing the Loopholes” statutes that came into effect in late 2023 and early 2024. 

Before diving into the details, a sidebar. These days, I’m fascinated by AI and what perspective the robots bring to bear on issues. So, I asked the Microsoft AI application Copilot to generate some material about the new underpayment laws. This is what it said: “Laws have been enacted to protect workers from unfair pay practices. These laws are designed to ensure that employees receive the wages they are rightfully owed for their labor (sic). 

“They address various forms of wage theft, including underpayment, failure to pay overtime, and misclassification of employees as independent contractors. 

“The new regulations also impose stricter penalties on employers who violate these laws, providing more robust mechanisms for employees to report and recover stolen wages. By holding employers accountable, these laws aim to create a fairer and more just workplace environment.”

The perspective that this extract reflects appears to be entirely focused on employee rights. 

The other issue is the recitation of the concept of “fairness” by the robotic intellect, something I find ironic given the use of drones to kill in the Middle East and in Ukraine, and indicative of the need to ensure that we cut through to the morals of the creators of these machines rather than vesting robots with a sense of morality. 

The bias of the human content creator is evident: the extract in no way questions the utility of potentially applying very large fines to inadvertent underpayments, for example, where a small or medium-sized employer may not be able to navigate the complexities of employment law. 

So, in order for you to come to your own opinion about these new laws, I’ll first explain some of the detail, then give you my take on the ramifications. 

My main concern, or bias if you like, is in having laws that everyone should be able to access and understand seeing as employment, work, is such a fundamental element of who we are, providing meaning and focus to the existence of many. 

As I will show, these laws unfortunately fail the simplicity test. In addition, criminal sanctions may have an important deterrent effect, but their introduction is not going to alter the vast majority of cases of underpayment of wages, which are often associated with a lack of understanding of awards and enterprise agreement terms. 

Having said that, I believe that every employee has a right to be paid the wages and entitlements which they are legally entitled to under Australian law. 

The new laws relate to conduct after the date of effect ie from January 1. There is no retrospective application. From that date, an employer commits an offence where:

• the employer is required to pay an amount to, on behalf of, or for the benefit of, an employee under the Fair Work Act or a specified instrument (for example, an enterprise agreement, modern award or an order of the Fair Work Commission), and
• the required amount is not a contribution payable to a superannuation fund for the benefit of the employee or certain other amounts called “excluded amount” eg long service leave under state or territory legislation, and 
• the employer engages in conduct and 
• the conduct results in a failure to pay the required amount to, on behalf of, or for the benefit of, the employee in full on or before the day when the required amount is due for payment.

For the first two elements of this offence are strict or absolute liability that is the question to be asked is at was the alleged underpaid amount required to be paid to the employee at law. 

The other two elements require the prosecution to prove beyond reasonable doubt that the employer intentionally engaged in the conduct complained of and intended that their conduct would result in a failure to make a required payment to the employee in full on or before the day when the required amount was due to be paid. 

This wage theft offence is punishable on conviction by a fine for body corporates to the greater of $8,250,000, or three times the amount of the underpayment and a term of imprisonment of not more than 10 years and/or a hefty fine for individuals.

Where the employer did not intend to underpay its employees there are increased penalties.

For individuals and incorporated small business employers, maximum penalties will not change, including for serious contraventions.

But for non-small business employers the penalties increase to $495,000 per contravention or three times the amount of the underpayment, whichever is greater. Where the contravention amounts to a “serious contravention” under the Fair Work Act, the maximum penalties increase to $4,950,000 per contravention for a body corporate (other than a small-business employer)

The threshold for what is a serious contravention has been lowered. As part of the new laws, a serious contravention can arise where there has been a “knowing or reckless” contravention. This is instead of the previous threshold of “knowing and systematic”.

The Fair Work Ombudsman (FWO) oversees compliance with the new laws. A feature of these laws is an emphasis on self-reporting. Employers who engage in wage theft may be able to avoid criminal penalties if they self-report and, if a small business, comply with a new code called the Voluntary Small Business Wage Compliance Code. 

For other businesses, the mea culpa is entering into a “co-operation agreement” with the FWO. While these actions stop referral for criminal prosecution, self-reporting will not protect employers from civil recovery and penalty actions by the FWO.

These laws mean that the payroll process should be undertaken with rigour. I’ve seen lawyers advise that audits should be undertaken, of course using lawyers so that legal professional privilege applies, that is the communications between the employer and the lawyer can’t be used in court proceedings. 

The new laws reinforce that management needs to fully understand the instruments that apply to their personnel. Mastering this understanding is often a time consuming process and can be counter intuitive. 

Let me give you an example from my own experience with a medium-sized building business. 

The owners of the business were unaware that redundancy is very broadly defined in the main award that applies to building industry employees. 

Under that award, and against its plain and ordinary meaning, redundancy is defined as a situation where an employee ceases to be employed by an employer to whom the award applies, other than for reasons of misconduct or refusal of duty.  

Obviously, this definition of redundancy has a far wider reach than its ordinary meaning, which is where a business no longer needs an employee’s role to be done by anyone.

The building industry award obligation to make redundancy payments may include a situation where:

• the employer no longer requires the employee due to lack of work or restructuring (the usual circumstance) or

• the employer is letting the employee go due to performance issues or

• the employee resigns after at least 12 months of service.

An employee is not be eligible for a redundancy payment only if:

• they are terminated due to misconduct or refusal of duty or

• they have been engaged for less than 12 months and the employee resigned.

It is the type of anomaly this example highlights that can trip up many employers. 

It is just one example of an award and employment regulatory system that is overly complex and often difficult to navigate. 

These new laws therefore reinforce that ignorance of the law is no excuse and that all employers must now be even more alert to the complexities of the minimum terms and conditions under which they engage their employees. 

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