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From 1 January 2025, stricter penalties will apply to Australian employers who knowingly and intentionally underpay their employees. The intentional underpayment of employees is now a criminal offence, carrying maximum prison sentences for individuals of up to 10 years.
These changes arise from amendments to the Fair Work Act 2009 (Cth) (FW Act) which took effect from 1 January 2025, applying to underpayments from that date.
An employer can be a company or an individual.
When can an employer be found criminally liable for underpaying employees?
If an employer is required to pay an amount to an employee or on behalf of an employee such as wages or superannuation under the FW Act or an industrial instrument (an award or enterprise agreement), and they intentionally engage in contravening conduct, the employer may be criminally liable.
Accidental or inadvertent payments should not be caught by the new offence.
The legislation also includes a ‘safe haven’ provision which encourages employers to self-report underpayments. If an employer self-reports, they may have the opportunity to enter into a cooperation agreement with the Fair Work Ombudsman, at the Ombudsman’s complete discretion.
The Ombudsman may consider the following non-exhaustive factors when considering whether to enter into a cooperation agreement with an employer:
- the extent to which the employer has made a ‘voluntary, frank and complete’ disclosure of the conduct, and the nature and level of detail of the disclosure;
- the employer’s cooperation with the Ombudsman in relation to the conduct;
- the nature and gravity of the conduct;
- the circumstances in which the conduct occurred; and
- the person’s history of compliance with the FW Act.
A cooperation agreement prohibits the Ombudsman from referring the conduct to the Director of Public Prosecutions (DPP) or Australian Federal Police (AFP). However, they are not prohibited from taking non-punitive action (such as issuing a compliance notice) or civil action, such as civil penalties. The cooperation agreement also does not prevent third parties from referring the employer to the relevant prosecuting agency.
To substantiate these claims, the level of proof that must be met is beyond reasonable doubt.
The Ombudsman has also released information on a Voluntary Small Business Wage Compliance Code, which means that if small business owners comply with the code they should not be criminally prosecuted if they engage in underpayment.
What penalties could apply?
Criminal Penalties
Currently, companies may be subject to a maximum fine, being the higher of:
- 3 times the amount of the underpayment; and
- A$8.25 million.
Currently, individuals may be subject to a maximum of 10 years’ imprisonment and/or a maximum fine, being the higher of:
- 3 times the amount of the underpayment; and
- A$1.65 million.
Civil Penalties – Non-small business
The civil penalties for underpayments made by non-small businesses have increased from 1 January 2025. A civil penalty may apply even if the underpayment was accidental.
For companies, the new maximum civil penalty will be for each contravention the greater of presently $495,000, or 3 times the amount of the underpayment.
The new maximum civil penalty for “serious contraventions” will be the greater of presently $4,950,000, or 3 times the amount of the underpayment.
What should employers do?
Employers should:
- Review pay rates in applicable minimum wage orders, awards or enterprise agreements, and ensure compliance and correct application;
- Conduct an audit to determine and promptly rectify any anomalies regarding job classifications, types of employment or minimum payments applicable to employees; and
- Inform and educate key personnel including board members, senior management and payroll supervisors of the impact of the new laws.
If you would like further information, please reach out to Chris Molnar, lead partner in our Australian employment team and Accredited Specialist in Workplace Relations.
Australia