Employers who intentionally underpay staff (including superannuation) could soon face criminal sanctions. Here’s what else HR needs to know about the Closing Loopholes Bill.

Reading this article might spark a sense of déjà vu for some people: another busy year drawing to a close with the promise of significant industrial relations changes awaiting them in the new year.

This time last year, many HR professionals and employers were wrapping their heads around the Secure Jobs, Better Pay Bill. Now, it’s the Closing Loopholes Bill that they need to familiarise themselves with.

“These changes are a reflection of the changing business and industrial landscape. For instance, while it’s not part of this tranche of changes, the regulation of gig workers is a product of an evolving economy and society. It’s about ensuring that workplace relations laws keep up,” says Michael Byrnes, Partner at law firm Swaab.

Part one of this Bill was passed by the Senate on 7 December 2023, with more controversial aspects tabled for further discussion in 2024. More on that in a moment.

First, here are some of the most significant aspects of the Closing Loopholes Bill.

Criminalising wage theft

In just over a year, by 1 January 2025, employers could face fines up to $7.8 million and 10 years in jail for deliberate acts of underpayment. 

The new legislation will also include provisions for the underpayment of superannuation, following a deal struck with the Greens party to support the Bill. 

Greens Senator Barbara Pocock said superannuation theft should not be treated as an “optional extra” and that Australian employees are currently losing $1,700 in “intentional non-payment of their superannuation”, according to estimates from Industry Super.

The rest of Australia will join Queensland and Victoria, which criminalised the deliberate underpayment of employees (wage theft) in September 2020 and July 2021 respectively. 

Byrnes believes this will be the most significant aspect of the first tranche of IR changes. 

“This has been an important issue for some years, particularly since the introduction of the serious contravention provisions of the Fair Work Act, which were significant enough, but this takes it to another level.

“Even though I suspect there won’t be many prosecutions, the fact that employers face the possibility of criminal penalties, including imprisonment, will certainly focus the minds of employers on ensuring they’re compliant in terms of their payment obligations.”

“While it might seem daunting at first blush, it’s a matter of stripping it down and looking at the amendments that actually impact your business.” – Michael Byrnes, Partner, Swaab.

As has been emphasised in both government communications and media reporting, these new laws will only pertain to employers who deliberately underpay their people.

“A court will look at the knowledge, conduct and intention of executives of the business. They will look at whether or not they knew this was happening,” he says.

Importantly, Byrnes says if your business is currently on notice for underpayment – even if, in this instance, it was an accidental underpayment – and doesn’t remedy this by the time the new legislation is effective in 2025, that could be deemed a deliberate act of underpayment.

“It could be said that they are continuing a practice of underpaying employees with knowledge of it.”

Byrnes says HR and employers should treat this as a warning to “double down” on compliance exercises around payroll.

He recommends:

• Ensuring you have compliance measures in place to identify which industrial instrument applies to an employee’s role.
• Checking that employee classifications are accurate.
• Implementing sound record-keeping processes.
• Ensuring you’ve remedied any existing, historical underpayment notices before the new legislation is enacted.

Small businesses (those with fewer than 15 employees) will also be protected before this legislation is enacted.

“As part of this process, the crossbench Senator Jacqui Lambie demanded, as a condition of support, that small businesses be provided with some additional support and assistance in order to ensure they weren’t inadvertently caught up in the web of these wage theft provisions.”

These resources include the development of a small business Code of Conduct, to be created prior to the wage theft laws coming into effect, and extra funding for the Fair Work Ombudsman to assist in communicating these new obligations to small businesses, according to a report from Smart Company.

Read about the Victorian restaurant that was the first Australian business to face criminal wage theft charges.

Labour hire: same job, same pay

Employers who engage labour hire workers, such as airlines, mining companies and warehouses, will soon have to pay them the same as full-time workers. 

While the law is expected to receive Royal Assent and be implemented either late in 2023 or early 2024, the Fair Work Commission won’t be empowered to make ‘Regulated Labour Hire Arrangement Orders’ until late 2024.

“Applications might be able to be made prior, but the applicable orders  can’t be made until November 2024,” says Byrnes.”This is to give the Fair Work Commission [and employers] time to prepare.”

However, he notes that the anti-avoidance provisions will take effect upon implementation.

“If an employer is engaging in conduct to avoid these provisions, that conduct could be looked into.”

This might look like purposefully misrepresenting the nature of the work the labour hire workers are doing to suggest an enterprise agreement at the host employer does not apply, for example.

The government has estimated that around 66,000 labour hire workers could receive a pay increase based on this new legislation, and Byrnes says the industries most likely to be impacted by this are construction and mining.

This has sparked pushback from many people in the business community, including Australian Industry Group. Its CEO Innes Willox said, “The sad result will be uncertainty for businesses across a raft of crucial sectors that will need to grapple with how they respond to this unworkable legislation.

“Employers will now inevitably need to decide between navigating costly litigation before the Fair Work Commission in order to argue why they shouldn’t be caught by the new laws or simply reassess their willingness to offer job opportunities.”

According to a report from The Guardian, Workplace Relations Minister Tony Burke was able to get two powerful business groups over the line – Australian Hotels Association and the Australian Resources and Energy Employer Association – by excluding service contractors from the changes.

“This draws on the distinction between employees and independent contractors, to some extent,” says Byrnes. “The rationale is that it should only apply to labour hire workers who are being used as de facto employees or a supplementary workforce. You don’t want it to apply to people who are genuine contractors providing a specific service.”

To determine if someone is a “de facto employee” or genuine contractor, he suggests considering the following as a general guide:

• Is it a provision of a service as opposed to a supply of labour? If yes, then they are likely a service provider.
• Does the employer direct, supervise or control the work? If not, then they are likely a service provider.
• The extent to which the worker uses the employer’s systems, plants or structures. If they’re not using them consistently, then they are likely a service provider.
• Is the work of a specialist or expert nature? If yes, then they are likely a service provider.

“In some ways, it draws on the principles that have traditionally applied in distinguishing an employee from an independent contractor.”

If your organisation is one that relies on labour hire workers, Byrnes says it would be advisable to look at your enterprise agreement and do a mapping exercise to determine if there is crossover between the work of your labour hire workers and the work that’s covered by the enterprise agreement.

“It’s also worth assessing the potential economic impact that [this new legislation] could have on your supply of labour.”

Criminalising industrial manslaughter at a Commonwealth level

New Commonwealth industrial relations changes are unlikely to have a wide-reaching impact, says Byrnes, as workplace health and safety legislation is largely governed at a state level.

Most Australian states and territories have existing industrial manslaughter legislation in place, or are in the process of passing it.

“[The new law] applies to government employers who are covered by the Commonwealth system.”

As with the state-based legislation, this will apply to officers and persons conducting a business or undertaking (PCBUs) that demonstrate “a high degree of recklessness” or negligence to safety that result in an employee’s death.

The consequences of this could involve fines of up to $18 million for body corporates or the Commonwealth and a maximum imprisonment of 25 years for individuals.

Read about an employer who was jailed for an employee’s death in Western Australia.

PTSD supporters for first responders

Under the Bill, the onus of proof for first responders (emergency service workers, paramedics, etc.) to prove they have experienced post-traumatic stress disorder will be reversed.

Under the current system, it can be challenging for these workers to navigate workers compensation claims, as it requires them to prove that the nature of their work was a contributing factor to their deteriorating mental health – which only becomes more challenging if they are still recovering.

“[This change] is incredibly significant and important for the people affected, and a positive development so they can get the compensation and support they need,” says Byrnes.

“It’s essentially a rebuttable presumption that if you’re a first responder and have PTSD, that your work was a significant contributor to that PTSD.”

These reforms will cover Commonwealth and ACT government first responders, including Australian Federal Police employees, ambulance officers, paramedics, firefighters, emergency services communication operators, State Emergency Services operators and all other roles covered under the Emergencies Act 2004 (ACT).

The second act: controversial aspects of the Bill

While some would argue that the details outlined above are controversial, the most divisive elements of the proposed Bill are yet to be passed.

In September this year, when the Government first introduced the Closing Loopholes Bill, it faced significant backlash from both business groups and members of the crossbench, namely Jacqui Lambie and David Pocock. 

Both wanted to see the Bill split, as they felt it was unwieldy and that certain aspects required further discussion.

After agreeing to hold off on provisions of the Bill related to reforms to the gig economy, road transport industry and casual workforces, the government was able to get its other changes over the line in the final sitting week of 2023.

Byrnes notes that while the government opted to take an expedited step in getting some of the less controversial aspects of the Bill passed quickly, that’s not to say the rest of the Bill will be forgotten about.

“The most controversial and broadest change of all will be the casual employment changes, if [they’re] implemented. It will potentially impact a significant majority of employers.”

He also notes that the gig economy changes are interesting, as they will introduce regulation to a previously unregulated space.

“It will broaden the conception of what employment and workplace relations law is about in some ways, by extending it to [include] ’employee-like’ workers.”

He suggests that the second tranche of the Bill will be a priority in 2024, but we’re probably unlikely to see further changes until the Senate Committee’s inquiry is complete in February.

Getting across the details of all these changes might feel like a daunting and time-consuming task, which is why Byrnes suggests HR professionals take a high-level view of these changes.

“While it might seem daunting at first blush, it’s a matter of stripping it down and looking at the amendments that actually impact your business. 

“There are a raft of changes, but not all of them apply to all businesses. It’s important to be across these changes at a high level, but you don’t need to dig into the minutiae of them all.

“Compared to the changes from a year ago, which did have, by and large, universal application, this tranche of changes applies to more specific situations.”

He says wage theft is the main change that employers should be across, but notes that most employers would already have many of the appropriate safeguards in place.

“This is something that businesses should have already turned their minds to, so it’s just a matter of making sure that compliance is strict. The prospect of criminal prosecution also gives HR a card to play with senior management about the importance of ensuring there are resources and support for HR to implement the processes necessary for compliance.”

Keep an eye out for AHRI’s new Advanced HR Law short course in the new year, which will focus on a range of HR law topics, including Industrial and Employment Relations. In the meantime, browse AHRI’s existing suite of short courses that are on offer.