New Criminal Provisions for Underpayment

From 1 January 2025, intentional underpayments of wages or entitlements are a criminal offence, under new amendments to the Fair Work Act 2009 (Cth) (the Act).

 The New Criminal Provisions

Under the amendments, it may be an offence if an employer:

• is required to pay an amount to, on behalf of, or for the benefit of, an employee (a required amount); and
• the employer intentionally engages in conduct which results in a failure to pay the required amount to the employee in full on or before the day when the required amount is due for payment.[1]

These provisions apply to most entitlements arising under the Act or a workplace instrument, such as an award or enterprise agreement, including wages and paid leave entitlements, but do not apply to solely contractual entitlements; the provisions do not have retrospective effect.

The provisions do not criminalise unintentional or accidental underpayments, or underpayments based on a genuine mistake, which will continue to be dealt with by civil action.

 Penalties

The maximum penalties for an individual breaching these provisions are 10 years imprisonment and/or a maximum fine of up to:

• 3 times the amount of the underpayment, if the court can determine that amount; or
• $1,565,000 for an individual or $7,825,000 for a body corporate.

The Fair Work Ombudsman (FWO) will be primarily responsible for investigating the new criminal offence, and will then refer matters to the Commonwealth Director of Public Prosecutions (DPP) or the Australian Federal Police (AFP) for prosecution.

 Safe Haven

New provisions which provide employers a ‘safe haven’ from criminal prosecution have been created in the form of the Small Business Wage Compliance Code and Cooperation Agreements.

Small Business Wage Compliance Code

The Small Business Wage Compliance Code (Code) outlines specific steps a small business employer can take to ensure they do not commit an offence under the new provisions. These include, but are not limited to:

• making reasonable efforts to ascertain correct rates of pay and entitlements for the employee; and
• seeking information or advice from reliable sources in relation to the payment of applicable amounts to, on behalf of, or for the benefit of, the employee; and
• taking reasonable steps to rectify the failure to pay the applicable amount after becoming aware of the failure.[2]

If the FWO is satisfied that a small business has complied with the Code, they will not be referred for criminal prosecution.

Only small businesses, defined as having 15 employees or less, will be able to rely upon compliance with the Code. Businesses with over 15 employees will have the option to enter into cooperation agreements.

Cooperation Agreements

A cooperation agreement allows a person (including a body corporate) to access safe haven from criminal liability for intentional underpayment or “wage theft” offences by disclosing to the FWO conduct which they believe may be an offence. Once an employer has disclosed specific conduct to the FWO, the FWO then has discretion as to whether they enter into a cooperation agreement.

A cooperation agreement is a written agreement between the FWO and a person (an individual, corporate entity or Commonwealth agency) which:

• covers specified conduct engaged in by the person that amounts to a potential offence or related offence; and
• includes terms that require the person to take positive steps to enable the remedying of the effects of their conduct and ensure future compliance.

If the FWO decide to enter into a cooperation agreement they must not refer the conduct engaged in by the person that is subject to the agreement to the DPP or the AFP while the agreement is in force.

However, the inspector is not prevented from commencing civil proceedings in relation to the conduct or referring the conduct of another person not party to the agreement to the DPP or the AFP.

Implications for Employers

Penalties for intentional wage theft, and underpayments arising from genuine mistake are significant. Employers who underpay their workers now risk facing criminal prosecution.

Employers should take proactive steps with respect to wage compliance, including by conducting regular audits, to ensure irregularities are identified and remedied.

EMA Legal is able to assist employers with any questions that may arise from underpayment issues and wage compliance.

[1] Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) s 327A

[2] For more information on the Code, see Voluntary Small Business Wage Compliance Code Declaration 2024