Closing Loopholes Bill Part 1: Compliance and Enforcement: Criminalising Wage Theft

The Australian government has implemented significant amendments to its labor laws with the introduction of the "Closing Loopholes" legislative package, which comprises the Closing Loopholes Act 2023 and the subsequent Closing Loopholes No. 2 Act 2024. This legislation, passed by the Commonwealth Parliament on December 7, 2023, marks a pivotal step in combating wage exploitation.

A cornerstone of these amendments is the introduction of a new criminal offense known as Wage Theft, which targets employers deliberately underpaying their employees. This move to criminalise wage theft reflects a growing recognition of the severity of underpaying workers and the necessity for stricter enforcement measures.

The legislation specifically targets intentional underpayments relating to employee entitlements outlined in the Act or under a fair work instrument, such as modern awards or enterprise agreements. Notably, the offense extends to intentional underpayments of superannuation contributions, reinforcing the government's commitment to protecting employee benefits.

Commencing January 1, 2025, stringent penalties will be introduced for employers, including individual directors, who intentionally withhold wages or superannuation contributions. Penalties include imprisonment for up to ten years and fines reaching $7.8 million.

A key aspect of these new provisions is the consideration of the employer's intent, highlighting the importance for employers to proactively ensure compliance to avoid severe repercussions.

Employers previously or currently identified for underpaying employees must be particularly vigilant. The courts will consider whether employers knowingly continued underpaying employees, potentially interpreting this as a willful violation of the new laws. This underscores the urgent need for employers to conduct thorough compliance audits of their payroll and management practices to rectify any underpayments and avoid future legal complications.

Moreover, the legislation introduces measures to encourage employers to self-report underpayment violations. Incentives for self-disclosure include protection from criminal prosecution for wage theft, provided certain conditions are met. This includes adherence to a forthcoming Voluntary Small Business Wage Compliance Code, developed in collaboration with government and industry groups. Compliance with this code will serve as a safeguard against criminal prosecution for self-disclosing employers.

Additionally, the Fair Work Ombudsman (FWO) may enter into cooperation agreements with employers who voluntarily report wage underpayments. While these agreements can exempt employers from criminal prosecution, the FWO retains the authority to take alternative measures, such as issuing compliance notices or pursuing civil action.

It's crucial to understand that the new wage theft offense will not penalise honest mistakes or unintentional miscalculations by employers. Instead, it targets deliberate acts of underpayment, holding those who intentionally exploit workers criminally accountable. The inclusion of cooperation agreements and compliance codes serves to support employers who have made unintentional errors, offering them pathways to rectify these mistakes while maintaining their obligation to fair worker compensation.

The changes usher in a new era of accountability in the Australian workplace, emphasizing the importance of fair compensation and the legal responsibilities of employers.

These amendments are scheduled to take effect from January 1, 2025, but the actual commencement date hinges on the declaration of the Voluntary Small Business Wage Compliance Code by the Minister for Employment and Workplace Relations. If the Code is not declared, the offense will not be enacted. This phased approach allows employers time to adjust and align with the new legal standards, ensuring that worker rights are protected and upheld in the Australian labor market.

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