SMEs face 50% higher wage theft penalties under IR reform bill

Small businesses that underpay workers could be hit with 50% higher civil penalties, under the federal government’s industrial relations reform bill set to be introduced to parliament on Wednesday.

Attorney General and Minister for Industrial Relations Christian Porter said in a statement the legislation will seek to impose tougher penalties on businesses that underpay workers in a three-tier system.

Small businesses and individuals will be subject to the first tier, which will apply to most wage underpayments and increase the maximum penalties to $99,900 for body corporates, up from $66,000, and to $19,980 for individuals, up from $13,320.

The second tier will apply to bigger businesses, which will face maximum penalties based on the higher of either ‘two times the benefit obtained’ or $99,900. However, small business will be exempt from this change and it won’t apply to individuals.

“Serious” underpayments by bigger businesses will attract even higher penalties under the third tier of the system, with fines to be based on the higher of either “three times the benefit obtained”, or $666,600. Small businesses will be exempt from this change, although existing penalties for serious contraventions will still apply.

The government will also seek to increase by 50% infringement notices fines and maximum penalties for sham contracting and failing to comply with compliance notices from the Fair Work Ombudsman.

For severe cases of intentional wage theft, the government has proposed a new criminal offence that would carry with it potential jail terms of up to four years and fines of $1.11 million. Individuals would also be automatically disqualified from managing corporations for five years if convicted.

This criminal offence would apply in cases of “egregious” wage theft, where a “national system employer dishonestly engages in a deliberate and systematic pattern of underpaying one or more of their employees”.

However, the offence would not apply to one-off underpayments, inadvertent mistakes or miscalculations.

Australian Chamber of Commerce and Industry industrial relations director Scott Barklamb says the proposed changes are unlikely going to fix the problems that lead to underpayment.

“At some point we can’t scare people into complying with the law. We have to have a serious look at the quality of the law itself,” Barklamb tells SmartCompany.

Barklamb says fines related to underpayment were already increased tenfold in 2017, so he is doubtful larger fines will discourage underpayment.

“We remain sceptical that additional penalties, even higher fines, can even fix the problems that lead to underpayments, which in our view, are the complexity and ambiguity of awards and payment standards,” he says.

Instead, Barklamb wants to see reforms tackle the complexity of employment regulation and better information from agencies like the Fair Work Commission, as well as an improvement of the substance of the regulation itself.

Employer groups have largely welcomed the government’s proposed industrial relations reforms, says Barklamb, but the increase in civil penalties for wage theft and addition of criminal penalties are the “odd one out”.

“We think the bill is overwhelmingly a set of moderate but significant changes, which in combination, will make businesses more confident to employ, to take risks, to reinvest and recover,” he says.

As to what level of penalties will be imposed on businesses in practice, Trent Hancock, principal at Jewell Hancock Employment Lawyers, says courts will consider a wide range of factors when imposing a fine.

“So often, if the employer has demonstrated remorse and understanding for the situation and has agreed to rectify the underpayment — that would reduce the amount of penalty that’s imposed. As would be the availability of resources to audit, investigate and rectify underpayment,” Hancock tells SmartCompany.

Hancock says, overall, the government’s IR reforms are set to make significant changes to employment law, many of which will be important for SMEs when structuring their workforce.

“There’s some opportunities there, but also some risks with the increase of the civil penalties as well, so as always SMEs should be conducting regular audits to ensure that they are paying their workers correctly, keeping records of those regular audits so there can be no suggestions that there’s been any deliberate or systemic underpayment,” he says.