From 1 January 2025, amendments to the Fair Work Act 2009 will make intentional underpayment of wages a criminal offence. These changes are part of broader reforms aimed at protecting employees from wage theft while providing clear guidance for employers.

Key Features of the Legislation Changes

1. Criminal Offence for Intentional Underpayment

An employer can be prosecuted if they intentionally fail to pay employees their lawful entitlements, including:

• Wages (minimum rates, penalty rates, overtime).
• Allowances and superannuation.
• Entitlements under applicable awards or enterprise agreements.

Intentional conduct includes:

• Deliberately paying less than the legal entitlements.
• Purposefully not paying wages or superannuation.

Penalties:

• For individuals: Up to 10 years imprisonment or $1.65 million in fines.
• For companies: Up to $8.25 million or three times the underpaid amount,
  whichever is greater.

2. Protections for Small Businesses: Voluntary Small Business Wage Compliance Code

The Voluntary Small Business Wage Compliance Code provides safeguards for small businesses (<15 employees) against criminal prosecution for unintentional underpayment.

Eligibility and Compliance Steps:

Small businesses must show reasonable efforts to comply, including:

• Maintaining accurate payroll records.
• Correcting errors promptly and back paying employees.
• Staying informed on changes to wage laws and rates.

Businesses that comply with the Code will not face criminal charges for unintentional underpayments but could still face civil penalties or other enforcement actions.

3. Expanded Liability for Involvement in Wage Theft

Not only employers but also individuals (e.g., managers, payroll staff, accountants) who are knowingly involved in wage theft can face criminal penalties.

Who is Exempt?

The criminal offence does not apply to certain situations, including:

• Genuine mistakes or miscalculations.
• Employees working for unincorporated entities in specific states (e.g., sole traders in Victoria underpaying super).

For more details, see the exceptions at Fair Work’s site.

Practical Implications for Employers

• Audit payroll systems to ensure compliance with awards and agreements which
  includes penalties, allowances and overtime payments.
• Provide training for staff involved in payroll management.
• Use resources like the Fair Work Pay Calculator to verify employee entitlements.
•  Ensure if you are paying all purpose rates (flat rates) you have appropriate
  documentation such as Individual Flexibility Agreements (IFA) in place and that
  the flat rate/all purpose rate is better off than the award rates.

Support and Resources

The Fair Work Ombudsman offers tools and resources to help businesses comply,
including:

• Wage calculators and pay guides.
• Record-keeping templates.
• Training and updates on legislative changes.
• HR Focus can assist in providing reviews/audits of pay rates.