Wage theft has been criminalised: Is your business at risk?

As of 1 January 2025, it is a federal criminal offence for employers to intentionally underpay their employees.

What are the changes?

In short, employers who intentionally fail to pay an employee a ‘required amount’ under the Fair Work Act 2009 (Cth) (FW Act), a modern award or enterprise agreement could be subject to up to 10 years’ imprisonment, and/or a fine of up to the greater of:

• three times the amount of the underpayment; or
• $1.565 million for individuals or $7.825 million for corporations.

Underpayments that are accidental, inadvertent or based on a genuine mistake are not intended to be caught by the new offence.

How will intention be proved?

To be found guilty of the new criminal offence, an employer must have intentionally engaged in conduct, with that intentional conduct resulting in a failure to pay a ‘required amount’ to an employee in full on or before the day the ‘required amount’ is due for payment.

To establish the intention of a company, it will need to be proved that the company expressly, tacitly or impliedly authorised or permitted the commission of the offence. Pursuant to section 12.13 of the Criminal Code (Cth), this can be done by proving that:

1. the body corporate’s board of directors intentionally carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence;
2. a high managerial agent of the body corporate intentionally engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence;
3. a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non–compliance with employer pay obligations in the FW Act and industrial instruments; or
4. the body corporate failed to create and maintain a corporate culture that required compliance with employer pay obligations in the FW Act and industrial instruments.

Very few companies are likely to fall within 1) or 2) above (i.e., in very few companies would the board of directors or senior management knowingly or recklessly permit or engage in the underpayment of employees).

However, under 3) and 4) above, the concept of intention goes beyond conduct that is authorised or permitted. In addition, a company can be found to have intentionally underpaid its employees where there was a ‘corporate culture’ that tolerated non-compliance, or where the company failed to create and maintain a ‘corporate culture’ that required compliance.

What can employers do to create and maintain a corporate culture of compliance?

Employers should be carefully considering:

• what steps they can take to ensure that their ‘corporate culture’ does not tolerate non-compliance with employer pay obligations; and
• how they can create and maintain a ‘corporate culture’ that requires compliance with employer pay obligations.

Current systems and process may not be enough to establish the employer has a corporate culture of compliance with employer pay obligations. In our view, to create and maintain a corporate culture of compliance, employers should consider undertaking the following steps:

1. introduce a wage integrity policy, which sets out the employer’s zero tolerance attitude to underpayments, as well as how an employee can raise a concern that they have not been paid properly;
2. implement a wage compliance framework, which outlines the employer’s plan to, as far as possible, ensure compliance with employer pay obligations including key steps such as undertaking risk assessments, regular auditing, and future proofing the system; and
3. ensure relevant staff and managers are appropriately trained in relation to compliance with employer pay obligations.

Key takeaways

Given the broad circumstances in which an employer can be said to have intentionally underpaid their employees, it is essential that employers take appropriate steps to ensure that their ‘corporate culture’ is one which does not tolerate non-compliance with employer pay obligations. Employers who do not take proactive measures risk prosecution under the new federal criminal wage theft offence.