What is Wage Theft?

Wage theft is the underpayment of entitlements or wages to an employee by an employer. It can include paying less than the mandated minimum wage, not making required superannuation contributions, and withholding entitlements such as leave and penalty rates.

On 1 July 2021, new laws came into effect making it a criminal offence in Victoria for employers to dishonestly withhold entitlements or underpay employees. Prior to 1 July 2021, a business underpaying its employees may have found themselves investigated and prosecuted by Fair Work Ombudsman. However, from 1 July 2021 businesses may also be pursued by the Wage Inspectorate and subject to more severe penalties.

The new laws expose employers to fines, up to $1,090,444 for companies and up to $218,088 or 10 years jail for individuals. Victoria is now the second state to introduce wage theft reforms, with Queensland recently introducing a similar regime, and NSW tabling a proposed scheme.

Honest mistakes made by employers who exercise due diligence in paying wages and entitlements are not considered wage theft.

Under the Wage Theft Act 2020 (Vic) (Wage Theft Act), it is now a crime in Victoria to:

  • dishonestly underpay employees;
  • dishonestly withhold wages, superannuation or other employee entitlements;
  • falsify employee entitlement records to gain a financial advantage; and
  • fail to keep employee entitlement records to gain a financial advantage.

Common types of Wage Theft

Lack of knowledge surrounding applicable industrial instruments and modern awards is one of the most common reasons leading to wage theft. Even with an understanding of which instruments and awards are appropriate, there are issues surrounding the classifications.  Regular reviews and updates are essential to ensure employee classification levels align with their current award.

Wage theft can also occur when sufficient controls are not in place to accurately record hours of work and break times. As employers often require a record of hours worked, failure to do this appropriately can result in difficulty calculating minimum entitlements. 

This also leads to issues surrounding payroll configuration. Employers are required to pay overtime, penalties, loadings, allowances and superannuation guarantees when appropriate to their employees.  Without the correct base hours, the calculation of other entitlements is likely to be incorrect. 

How do you prevent Wage Theft?

To prevent or rectify issues around the underpayment of wages and entitlements, the most important thing for employers is to be proactive. Detailed below are a few ways an employer can monitor and detect any potential areas of concern.  

Employees with no change in pay rates

  • Employers need to keep up to date with future wage increases, by checking the employment classifications in relevant awards and noting other types of pay changes.
  • Employers should also set reminders to review employee pay rates for those that will increase on birthdays or yearly apprentice progression etc.
  • If an employer detects that several of their employees have not had a change in pay rate for a significant time period, there is potential that they are being underpaid.
  • Employers should be providing updated pay increase letters to employees on a regular basis.

Masterfile Review

  • Changes made to payroll Masterfile data should be reviewed regularly to detect any errors in a timely manner.
  • This will include review of new employee data (eg. pay rate, employment status).
  • Employers also need to check that pay rate increases have been correctly inputted.

BOOT Test

  • For employees paid under a ‘common law’ agreement the employer needs to apply the Better Off Overall Test (BOOT) to ensure they are being paid enough.
  • The BOOT test essentially weighs up the terms that are more beneficial and less beneficial to employees in an agreement, compared to the terms in the relevant modern award.

As well as financial implications, underpayment of staff can have a significant impact on the reputation of a business. Not only can it decrease employee satisfaction and retention, but it may also impact relationships with customers, clients and suppliers.

Contact Us

We are here to support you with all your financial questions and concerns. If you would like to speak to a Davidsons team member, contact us on (03) 5221 6399 or at info@davidsons.com.au.

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Disclaimer: This information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.

This article was written by Auditor Elvina Pandanikum and Graduate Accountant Olivia Crichton.