Sleeper issue in the federal wage theft laws: What should employers be doing now?

The federal wage theft laws will make it a criminal offence to intentionally underpay someone, with up to 10 years imprisonment for offences.

The changes mean it will no longer be enough to say, “We had no idea it was happening”, or just leave it to payroll to get right. A company needs to be taking proactive steps to ensure that underpayments do not occur.

The new laws are said to apply to deliberate underpayments but actually cast a much wider net. They effectively place a positive obligation on companies to put systematic measures in place to prevent wage underpayments. This is a major sleeper issue for employers.

This has come about because the new laws apply the Criminal Code Act 1995 (Cth) to determine whether a corporation has committed an offence.

The code provides that an offence can be established by proving that senior people in a company intentionally carried out an underpayment or expressly, tacitly or impliedly authorised or permitted an underpayment.

But there are two wider ways that corporate liability can be established:

• By proving that a corporate culture existed within the company that directed, encouraged, tolerated or led to non-compliance; or
• By proving that the company failed to create and maintain a corporate culture that required compliance.

A “corporate culture” means an attitude, policy, rule, course of conduct or practice.

This means that a company could be held criminally liable if it fails to “create and maintain” an attitude, policy, rule, course of conduct or practice that requires wage compliance. This is a proactive requirement that requires systematic measures to be taken to ensure people are paid correctly.

What should employers do now?

While the new wage theft provisions won’t commence until after 1 January 2025, there is a lot that a company needs to do to create and maintain a corporate culture of wage compliance. It takes time, and employers should start preparing now.

Here are five basic steps to get started:

1. Have a wage compliance plan

Employers should have a documented system that sets out the measures they will put in place to ensure wage compliance. This should clearly identify:

• Responsibilities
• Steps to be taken to determine employee entitlements
• Steps to be taken to ensure payments are calculated correctly
• How ongoing wage audits will be conducted, and
• What will be done if rectifications are required.

2. Correctly determining employee entitlements

Employers need a way of determining the correct award or enterprise agreement that applies to each role or whether no award or enterprise agreement applies. They also need a system for determining the correct classification for each role. This should be done for all existing and newly created roles.

3. Ensuring annualised salaries are sufficient

If a company is paying annualised salaries that are intended to be all-inclusive, they need to ensure that those salaries are sufficient to cover minimum entitlements. Companies should perform regular reconciliations to ensure this is the case. They also need to ensure that any contractual offset mechanisms are drafted adequately and that, if applicable, annualised wage provisions in awards are engaged with correctly.

4. Ensuring pay rules are correct

If a company pays employees per an award or enterprise agreement, the pay rules in their payroll software need to accurately reflect employees’ entitlements under the award or enterprise agreement. Employers should review these pay rules and ensure they are updated when award rates or benefits change.

5. Ongoing compliance audits

Employers should carry out regular pay audits to ensure any errors are picked up quickly and rectified.

Taking these five steps will provide employers with a solid starting point for creating and maintaining a culture of wage compliance ahead of the new laws (and penalties) coming into effect.

Sean Melbourne is the executive director of Source Workplace.