So-called “Wage Theft”, and wage underpayments in general, have emerged as an issue in Australia over the last 6 years or so. Put simply, Wage Theft is when an employer underpays an employee either intentionally, or with high levels of negligence or recklessness towards their payroll compliance obligations. The level of ‘intent’ is where Wage Theft differs from underpayments in general. 2019 analysis from PwC estimated that underpayments to employees could be as high as $1.35 billion per year. Whilst only an estimate and not focusing on Wage Theft specifically, it can be assumed that despite only emerging as an issue relatively recently, Wage Theft has been occurring long before underpayments were discovered and publicised.
Wage Theft legislation
Currently, Victoria and Queensland have specific Wage Theft legislation that makes Wage Theft a criminal offence. The Victorian Wage Theft Act 2020 specifies that dishonestly withholding employee’s wages, leave entitlements or superannuation and falsifying or failing to keep employee’s records can lead to individuals facing fines of up to $198,264, or for businesses $991,320. Furthermore, there can be up to 10 years of prison added to the sentence if the case is found to be serious enough.
In Queensland, the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020 was passed with new offences relating to unpaid hours of work, penalty rates and superannuation, unreasonable wage deductions and avoidance of payments due to ‘sham contracting’ or intentional classification of employees under the wrong award. This legislation amended the definition of “stealing” to include the aforementioned acts, therefore making them criminal offences. Employers will be found liable if they wilfully or deliberately fail to pay an employee and can be sentenced to a maximum of 10 years in jail.
Elsewhere in Australia, the newly elected South Australian government has flagged its intentions to introduce reforms to the State’s employment law. These reforms are to include criminal penalties for employers who persistently and deliberately underpay employees. Other states, including ACT, WA, and NSW have all yet to criminalise Wage Theft, however, they have made various amendments to create a legal difference between an underpayment and Wage Theft.
The Fair Work Ombudsmen’s role
The FWO can act to punish individuals and business for failing to meet the payslip and record keeping obligations under the Fair Work Act 2009 and Fair Work Regulations 2009. An FWO Inspector can hand out infringement notices that are similar to on-the-spot fines. However if the contraventions are found to be more serious or done in a systematic or purposeful manner, then litigation can be undertaken against the business or individual. Here there is potential for the fines to be much larger:
- $133,200 per contravention for individuals
- $666,000 per contravention for companies
Wage Theft would generally be classed as a serious contravention. These serious contraventions are distinguished from regular contraventions through two key ways. Firstly, if the person or company were aware of their contraventions and secondly, if the contraventions were part of a systematic pattern of conduct affecting one or multiple people.
How does Wage Theft happen?
Wage Theft is often an intentional act in which a business is either purposely paying employees less than what they are entitled to, or being extremely negligent or reckless in their payroll compliance practices, leading to underpayments. Some of the ways that Wage Theft can occur are by:
- Employers not paying superannuation contributions
- Employers paying employees “cash-in-hand”, without proper payroll calculations
- Employers running a cash-back scheme, where employees are forced to withdraw cash from their bank or pay cheque and return it to their employer.
Additional obligations on franchisors to prevent Wage Theft
Franchisors have an important additional responsibility to take “reasonable steps” in preventing their franchisees from underpaying their staff. However, where franchisees are purposefully underpaying staff, it can often make it more difficult for the franchisor to be proactive in acting against this where the franchisees are simply uncooperative with the franchisor’s efforts.
Educating franchisees about their obligations under Australian employment laws and the potential repercussions for failing to meet them, can be one means of implementing a deterrence against non-compliance. With the criminalising of Wage Theft in Victoria and Queensland, and increasingly severe punishments in other states, the potential risk for Wage Theft is increasing rapidly.
Having franchisees regularly audited can provide the franchisor another opportunity to check on stores and identify potential non-compliant franchisees. If you want to find out more about payroll audits, click here.
ER Strategies’ Solution
Businesses and franchises having access to advice from employment compliance experts can be a useful measure in avoiding wage theft caused by reckless employment compliance practices.
Our WorkShield packages are designed to accommodate businesses of all types and sizes to improve and maintain employment compliance within an organisation. Each WorkShield package is comprised of various amounts of consulting time from our consultants, an extensive library of key HR documents, and access to our employment compliance training platform, the ERS Academy. Click here to find out more.
