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What is ‘wage theft’?

Underpayment of wages claims commonly referred to as ‘wage theft’ claims generally relate to the underpayment of wages or non-payment of entitlements such as leave, superannuation and penalty rates. Wage theft can occur in a number of different ways including unpaid or underpaid hours, unreasonable deductions, requiring workers to repay wages earnt or paying employees with food and drink.

A 2019 report by PwC estimated that the underpayment of workers’ entitlements in Australia totalled ~$1.35 billion per year. Within South Australia, it has been estimated that approximately 170,000 workers are impacted by wage theft, accounting for one fifth of the state’s workforce.

In recent years the prevalence of wage theft has become more apparent with major organisations such as Woolworth and 7-Eleven admitting to underpaying their workers. Legislation has been introduced in various jurisdictions around Australia to criminalise the practice however there are some who believe large fines and jail time is too harsh.

How and why does it occur?

The underpayment of wages occurs for various different reasons. Typically, there is a misinterpretation of an industrial instrument or they occur by honest mistake.

In Australia there are 121 modern awards which contain differing minimum pay rates and entitlements. Employers often misclassify their employees, misunderstand when the appropriate penalties and entitlements are to be paid. Honest mistakes can lead to millions of dollars’ worth of under payments to workers especially if the mistake is not identified and rectified. Often employers are unaware they have been underpaying their employees until a wage audit is conducted an the severity of the underpayment is revealed.

Recent examples

Recently, fast food giant McDonalds has been under fire for wage theft with workers claiming up to $250 million for lost entitlements. The Shop, Distributive and Allied Employees' Association (SDA) is alleging McDonalds and 328 operators across Australia denied workers an interrupted 10-minute break which they were entitled to under the Fast Food Award. While the SDA is claiming McDonalds acted systematically and deliberately, it is likely that an oversight was made which may end up costing the business millions.

A national law firm has also recently begun an investigation into wage theft on behalf of junior doctors at SA Health. The doctors claim they regularly work unpaid overtime and many miss out on meal breaks due to being overworked. The doctors claim they are expected to start early to prepare for their shift which they don’t get compensated for. Similar cases have also been heard in Victoria and New South Wales. If the doctors are successful it could see the State Government liable to pay millions of dollars to effected employees.

These examples illustrate that ‘wage theft’ does not strictly relate to underpaying wages but can also include denying employees entitlements including break times, overtime etc.

Potential criminalisation

In 2020 Victoria passed legislation establishing criminal penalties to employers who deliberately and dishonestly underpaid their workers. These new laws expose employers who are found to be in contravention of the legislation to fines of up to $218,088 or up to 10 years imprisonment for individuals and up to $1,090,440 for companies.

Queensland also amended its Criminal Code in 2020 to enable wage theft to be prosecuted as stealing. Employers in Queensland engaging in wilful and deliberate wage theft can face up to ten years imprisonment.

The State Government has indicated that it will support legislation which would criminalise instances of wage theft. The proposed legislation would seek to punish employers who knowingly, recklessly, or repeatedly underpay their workers. There is a real possibility that similar legislation will be introduced into South Australia in the near future. New legislation could expose employers up to a maximum of 15 years imprisonment. If introduced, the proposed laws would bring South Australian laws in line with Victoria and Queensland.

While wage theft is not yet criminalised in South Australia, employers can still face civil penalties and fines of up to $12,600 for each offence committed by an individual and $63,000 for each offence committed by a company. If the court finds that there has been a serious contravention of the FWA, the penalties increase to $126,000 and $630,000 respectively. These fines are paid in addition to the quantum amount of the underpayment.

Employers obligations

With criminalisation on the horizon and large financial penalties already in place, it is important employers take the necessary steps to ensure they are complying with their legal obligations.

Employers can take the following steps to mitigate risk:

  • Review employee wages against the relevant industrial instrument and/or the national minimum wage;
  • Keep up to date with any changes to industrial instruments or the national minimum wage;
  • Ensure your employees are correctly classified for the job they are undertaking;
  • Perform regular wage audits;
  • Review payroll functions and ensure it is properly resourced;
  • Make employees feel comfortable to raise any wage or entitlement issues; and
  • Seek legal advice before an issue occurs where possible.

If you would like more information about how the underpayment of wages occur, the legal implications of ‘wage theft’ on your business and how to mitigate risk, please contact our experienced Employment and Workplace Relations team for assistance.

This article was contributed to by Solicitor, Maida Mujkic.