Wage theft: What businesses need to know
Wage theft is an ongoing problem in Australia. Consider the following:
International professional services firm PwC estimates worker underpayments to be as high as $1.35 billion per year.
In 2021, Industry Super Australia reported that Australian workers had $5 billion in superannuation stolen.
A Senate inquiry report said that wage theft in Australia is systemic, sustained and shameful, with workers often too scared to speak out for fear of repercussions.
However, sometimes employers make honest mistakes. Either way, the penalties for underpayment are harsh, so you need to mitigate the risks.
In this guide, you’ll discover what wage theft is, the severe penalties you could face, and how you can reduce the risks for your business.
What is wage theft?
Wage theft occurs when employers knowingly steal wages and entitlements from employees. It means that an employer:
Deliberately underpays employees.
Dishonestly fails to pay wages, superannuation or other employee allowances and entitlements.
Fraudulently manipulates employee entitlement records to gain a financial advantage.
Intentionally fails to keep employee entitlement records to benefit themselves.
Wage theft is widespread in many industries, including retail, fast food, hospitality and hair and beauty.
In 2020-21, the Fair Work Commission (FWC) reclaimed nearly $150 million in unpaid wages for almost 70,000 workers.
Types of employer wage theft
There are several ways employers steal wages and entitlements from their employees, including:
Paying less than the minimum hourly rate.
Failing to pay overtime, penalty rates, superannuation and allowances.
Making unlawful cash deductions from wages for breakages, till shortages and accommodation.
Refusing to grant leave.
Demanding employees pay wages back in illegal “cash-back” schemes.
Paying employees cash-in-hand to keep transactions “off the books.”
Offering unpaid work experience or internships.
High-profile examples of wage theft
In Australia, accusations of wage theft are on the rise, even though a new law criminalises intentionally underpaying or withholding workers' wages.
Here are two high-profile examples that illustrate the problem of wage theft:
The Coles Group has been charged twice in quick succession over this issue.
First, the state of Victoria fined the supermarket chain for underpaying more than 4,000 employees almost $700,000 in hard-earned long service leave entitlements.
Then, a second investigation by the FWC found Coles had allegedly underpaid more than 7,500 workers by $115 million from the start of 2017 until March 2021.
Woolworths, another supermarket chain, underpaid its workers by more than $300 million in 2019. Since then, it has settled the claim and pledged to repay $50 million to its employees.
Wage theft penalties
Wage theft is now a criminal offence in Queensland and Victoria. And, like the Fair Work Ombudsman (FWO), they can inflict severe penalties.
Besides reputational damage, wage theft penalties can include significant fines and imprisonment, meaning employers can face criminal charges and up to 10 years in jail.
Fair Work Act
If the FWO reasonably believes employers have contravened their obligations in the Fair Work Act 2009 and the Fair Work Regulations 2009, they can issue infringement notices or take them to court.
The wage theft penalties apply to breaches of:
Modern awards or enterprise agreements.
National minimum wage orders.
Wage payments methods and frequency.
The maximum penalty per infringement is $12,600 for individuals and $63,000 for companies (at time of publishing).
Furthermore, the FWO can issue higher penalties for extreme cases in which a business or individual knew that they were contravening workplace law systematically. For such cases, the maximum penalty per infringement is $126,000 for individuals and $630,000 for companies (at time of publishing).
Victorian wage theft penalties
In Victoria, individual employers who commit wage theft could be subject to fines of over $220,000 or 10 years in prison - companies face fines of over $1.1 million
Victoria’s Wage Theft Act 2020 covers the following offences:
Dishonestly withholding employee wages, leave entitlements, or superannuation.
Falsifying or failing to keep employee records, such as payroll records.
However, the legislation differs from the Fair Work Act and requires dishonest intent for employers to be found guilty. In Victoria, those who make honest mistakes or perform due diligence might not be found guilty, but they could still face penalties or prosecution.
Queensland wage theft penalties
Queensland amended its existing Criminal Code definition of stealing to make wage theft a criminal offence. Employers found guilty of intentionally failing to make payments of employee wages or entitlements can face up to 10 years in prison.
How employers can reduce wage theft risks
Rather than face hefty penalties, here are four ways employers can reduce wage theft risks:
1. Invest in a single-touch payroll system
Investing in a single-touch payroll system like MYOB saves you time and reduces human errors by automatically calculating payroll variables like superannuation, tax and annual leave.
2. Classify employees
It’s important to understand and classify employees correctly to avoid any underpayment issues.
Incorrect classification errors include:
Designating a part-time employee as a casual worker.
Assigning an employee to a lower classification level than what their modern award or enterprise agreement dictates.
Failing to increase wages for casual junior employees on their birthdays.
3. Research employee awards
Whenever you have employees covered by a modern award, you must comply with its terms, including paying minimum wages, overtime pay and penalty pay, plus leave loading.
If you fail to research and comply with any modern award terms, you could face an investigation by the ATO or Fair Work Ombudsman, resulting in fines and imprisonment.
4. Correct mistakes as soon as possible
If you discover that you’ve underpaid your staff, then correct any mistakes as soon as possible. Protect your employees and your reputation by following the steps below:
Determine the period of underpayment.
Calculate the actual amount paid.
Find out what the entitlement was.
Calculate the difference.
Apologise and make a back-payment.
Identify the cause of the error and put systems in place to prevent it from happening again.
Get legal advice about how to avoid future underpayment issues.
Prevent unintentional wage theft with MYOB
Wage theft is on the rise in Australia. And more companies are facing the consequences of knowingly stealing wages and entitlements from their employees.
The FWO and the states of Victoria and Queensland have already issued significant wage theft penalties to several high-profile companies.
MYOB’s payroll software can help your business stay compliant and eliminate wage theft risks by:
Generating and sending single-touch payroll reports directly to the ATO.
Calculating payroll variables like superannuation, tax and annual leave within your workflow.
Enabling your employees to submit their bank, tax and superannuation details via a secure portal.
See how MYOB can help you manage your payroll and streamline operations. Start your free trial today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.