In 2020, many high profile employers either self-reported instances of underpaying employees or faced investigation and/or prosecution by the Fair Work Ombudsman (FWO). At the start of 2020, the Fair Work Ombudsman, Sandra Parker implored business that compliance with awards, enterprise agreements and the Fair Work Act was not negotiable. The ultimate responsibility for meeting your obligations rests with you, the business owner.

Looking at how this has played out over 2020 it was obvious that the FWO adopted a more aggressive approach against underpaying employers – even those who self-report possible breaches to the regulator. This has continued into 2021 – the pandemic does not provide cover here. Don’t be surprised to see the FWO pursuing penalties against individual directors and senior executives.

Whilst there has been a constant stream of media releases published by the FWO about underpayment investigations and prosecutions, this could potentially be just the tip of the iceberg, with many employers still mid-phase of internal investigations into their compliance. Although the reasons for underpayments are wide-ranging and may not be simply explained away, what is obvious is that employers have underinvested in payroll compliance over many years.

What is Wage Theft?

The definitions and penalties associated with wage theft differ between states and the FWO and it is important that you are aware of the risks and repercussions. Following is a snapshot of what you need to know about wage theft so you can be part of the solution and protect yourself and your most important asset, your employees.

Fair Work Infringement Notices and Penalties

Employers and individuals can face on the spot infringement notices or be taken to court where the FWO reasonably believes that they have contravened the record-keeping and pay slip obligations contained in the Fair Work Act 2009 and the Fair Work Regulations 2009.

Higher penalties apply for serious contraventions where a business or individual knew that they were contravening workplace law and they did so as part of a systematic pattern of conduct. These penalties can apply to breaches of modern awards or enterprise agreements, a national minimum wage order, the method and frequency of paying wages, record-keeping, and payslip requirements, and more.   

It should also be known that if a corporate employer is found to have breached a relevant provision of the Fair Work Act, then a manager involved in the contravention could also be personally liable and face a civil penalty of up to $12,600 per contravention.

A scary prospect!

Wage Theft and Victorian Regulations

Introduced in 2021, the Victorian Wage Theft Act 2020 will make wage theft a criminal offense. Those who commit offense could face fines of up to $198,264 for individuals, $991,320 for companies and up to ten years’ imprisonment.

Specifically, the legislation creates the following offences:
Dishonestly withholding employee wages, leave entitlements, or superannuation

Falsifying or failing to keep employee’s records, such as payroll records
The new laws differ from the underpayment provisions in the Fair Work Act in that they would require dishonest intent for employers to be found guilty. Those who make honest mistakes or perform due diligence will not be found guilty under these laws, but they could still face penalties or prosecution by the FWO.

Wage Theft and Queensland Regulations

Queensland has also made wage theft a criminal offence. In September 2020, the state passed the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020. This act amends the Queensland Criminal Code definition of stealing to provide an offence against an employer who intentionally fails to make payment of wages or entitlements, when it becomes payable to their employees. 

The drafting of the new offence is written in broad terms to catch a variety of deliberate unlawful conduct, including: 

• Unpaid hours or underpayment of hours of work
• Unpaid penalty rates
• Unpaid superannuation contributions
• Unreasonable wage deductions
• Avoidance of payments due to “sham contracting” or intentionally classifying an employee under the wrong award 

Employers found to have committed an offence can be liable to up to ten years’ imprisonment.

What can you do to minimize your risks?

How can you protect yourself, your business, and employees by taking steps to prevent underpayment of wages?

• Regularly assess compliance with awards, agreements, and employment contracts to ensure that employee entitlements are understood and correctly applied.
• Review payroll systems and processes to ensure there are checks and balances for the correct payment (and accrual) of employee entitlements.
• Provide regular training for everyone involved in payroll, including accounting, HR, and payroll teams. 
• Seek external counsel and ensure suppliers such as payroll providers are compliant with existing regulations.

Make a plan on how to respond to any queries or incidents related to underpayment so that these can be rectified before they result in litigation.

We have a handy downloadable that you can keep for future reference here. Click here to grab your copy now.

What are the consequences of not taking action?

Employers that have not yet commenced internal auditing of their payroll compliance are taking a big risk. The FWO and unions are likely to continue their robust pursuit of recalcitrant employers. Media interest in the issue is unlikely to subside and the reputational risk of noncompliance is elevated in the current climate where specific wage theft laws are on the state government agenda. Victoria leads the way here, and by mid-2021 it will become a crime to dishonestly withhold an employee’s wages or other entitlements. 

Whilst these criminal laws are unlikely to apply to most underpayments, the issues will no doubt be conflated and the reputational risk of noncompliance will remain high.

If you are worried that your business might be at risk, please contact us for a confidential chat.