As a business owner are you aware that from 1 January 2025, intentional under or late payment of certain wages or entitlements, what the media and many call “wage theft”, can be a criminal offence.

And if found guilty under a criminal court of this, you could personally face jail time and / or a significant personal or company fine.

So here are some things you need to know to about these new laws and how you can minimise your risk.

What late or under payments are covered?

The wage theft laws cover all payments made to your employees for services rendered other than:

• superannuation contributions
• payment for taking long service leave payments
• payment for taking leave connected with being the victim of a crime
• payment for taking jury duty leave or for emergency services duties.

Note the wage theft laws generally apply to incorporated businesses.  As such if you are a sole trader, partnership, other unincorporated entities, or non-trading corporation that has employees in NSW, SA, Qld, Tas and Victoria, these laws will not be applied to you.

Intentional vs Mistake

The wage theft laws are specific so that they only deal with where you, or someone in your business, has intentionally done something that intentionally results in an any covered payments not being paid on or before the day they were due.

The key word here is intention.  This is defined under section 5.2 of the Criminal Code and how the courts interpret this.

It is pretty obvious when someone clearly intends, for example, to pay an under the award rate of pay.

But what about other instances, such as paying a person the wrong rate of pay.  Was that intentional or an honest mistake?

And this now goes to how the courts interpret intention.  They state that intention is established where a business expressly, tacitly or impliedly authorises or permits, in this case wage theft.  This includes where:

• a business culture existed that directed, encouraged, tolerated or led to non-compliance; or
• the employer failed to create and maintain a business culture that required compliance.

So how do you demonstrate it is not intentional?

It is a bit like the old saying that “ignorance of the law is no excuse”.    You need to actually understand the laws around paying staff, and demonstrate how you, as the business owner, or your staff, keep on top of your obligations to pay people in compliance with the law.

And to help with this the government has issued on 6 December 2024, the Voluntary Small Business Wage Compliance Code.  This code outlines several ways that may indicate a failure to pay the correct payment to an employee is not intentional.  These include:

1. Make reasonable efforts to ascertain correct pay rates and entitlements: This involves considering factors such as modern awards, other relevant instruments, the nature of the business, the employee’s role and duties and classifications of such, and any applicable minimum rates, loadings, allowances, penalty rates, or overtime.
2. Made reasonable efforts to stay up to date with obligations: This includes staying informed about changes in applicable legislation, modern awards, etc that apply to the employee. And staying updated on any changes in the employee’s circumstances, such as role, duties, classification, qualifications, age, hours of work, or location.
3. Seek information or advice from reliable sources such as industry associations, professional bodies, industry professionals like lawyers or consultants, payroll processing services, and resources from Fair Work.
4. Providing information that is reasonably believed to be accurate.
5. Taking reasonable steps to rectify the failure: This includes repaying the amount promptly and taking proactive measures to prevent similar issues in the future..
6. Cooperation with any inquiries or investigations

Other circumstances that may indicate the failure was not intentional include:

• whether the failure arose from a mistake or error in payroll processes or by the banks
• if there was ambiguity in interpreting obligations – I have seen instances where 2 different Fair Work staff give different answers as to which classification for a staff member
• who identified the issue. Was it the employer through proactive review?
• how the employer responded to being made aware of the failure.

What is the process?

The process is that the Fair Work Ombudsman would conduct an investigation.

They then make the decision to refer to the Director of Public Prosecutions or the Australian Federal Police for criminal prosecution if they feel it is appropriate.

But if you are a small business (employing less than 15 staff), as long as you have complied with the Voluntary Small Business Wage Compliance Code noted above, then you won’t be referred for criminal prosecution.  But you may still face civil penalties.

If you employ more than 15 staff, you can still avoid criminal prosecution by entering into a cooperation agreement.  But I expect Fair Work will take the factors in the Voluntary Small Business Wage Compliance Code when they assess whether they will agree to this.

Next steps

If you have not done so already, have a look at the factors above under the Voluntary Small Business Wage Compliance Code and assess how your business would be viewed.    Also, Fair Work have published a “Guide to paying employees correctly and the Voluntary Small Business Wage Compliance Code” which gives you a checklist you can work through.

If necessary, seek appropriate professional advice.

Here is a link to the full Voluntary Small Business Wage Compliance Code and Fair Work guide

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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If you are thinking of a 2024 Christmas shutdown for your business in December 2024 / January 2025, you need to be aware of the rules around this.

Firstly you must give your staff a minimum of 28 days written notice of the temporary shutdown period.  So this notice is now becoming time critical now that we are in late November.

Secondly, as long as the temporary shutdown is reasonable, and staff have sufficient annual leave, you can direct your staff to take accrued annual leave during the temporary shutdown period.

But, if the staff member has insufficient leave to cover the period of the temporary shutdown, you can no longer force them take unpaid leave or annual leave in advance.  You need to get a written agreement from the employee that they will take leave without pay, or to take annual leave in advance.

If they don’t agree, then you need to pay them as if they were working even if the business is closed.  Not a great outcome.

For this reason, if you are a business that is planning to have a temporary shutdown at Christmas (or at any other time), it is important that you properly manage staff annual leave during the year so they have sufficient leave to cover the shutdown period.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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If you are a business owner who has:

• retained overseas resources directly (that is not through another business);
• an overseas resource who would be considered an employee under the new rules; and,
• agreements with these resources are done via email to you when you are located in Australia;

are you aware your overseas resource may be considered an Australian employee and they may cost you more than your budgeted for.

Read on to learn why.

Recently, I posted about a Philipino worker who was able to lodge a claim for unfair dismissal under the FairWork Act (Case [2024] FWC 2669).

This once again raises the question as to whether people who reside overseas, who are retained by an Australian company, are in fact Australian based employees covered by the FairWork Act.

Obviously the first test is whether the person is an independent contractor or not.  If they are an independent contractor, then they are not an employee and irrespective of where they are located they are not covered by the FairWork Act and its minimum employment standards.  Check out the difference between and employee and independent contractor here.

But if they are not an independent contractor, they are considered an employee.  This now raises the question as to whether they are an “Australian-based” employee.  All employees are deemed to be “Australian-based” employee unless the employee is to perform duties outside Australia; and, is engaged outside Australia.

Where the work is performed is usually a simple test and easily met.

But what about “engaged outside Australia”?

This was considered in another FairWork case [2023] FWC 2543.  This case considered a US citizen who has never been to Australia, working in Argentina who signed a contract direct with an Australian company.  That signed contract was emailed back to HO in Sydney.

The key question was when was the person engaged.  Were they engaged when they signed the contract (outside Australia), or when the company received the signed contract (in Australia).

And in this regard they looked at the Electronic Transactions Act (1999) (Cth) which states that when a contract is concluded by an electronic communication, such as an email, it is finalised at the place of business of the recipient of the email.  And they looked at another case Winter v GHD Services Pty Ltd [2019] FCCA 775  where it was determined that acceptance of a contract occurs when the acceptance is communicated to the offeror.

So based on these factors, the contract was considered accepted when the email was received by the business in Australia. Thus, the place of engagement was Australia, making the person an “Australian-based” employee.  And more importantly, this person is now covered by the minimum employment standards of the FairWork Act.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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Today, I want to talk about the issue of employees vs independent contractors and the importance of understanding difference between.

Under Australian law, if you are an incorporated business (for example a Pty Ltd business) any person who is deemed to be an employee is covered by the FairWork Act.

What this means, is that the person who is considered an employee has rights such as minimum rates of pay, selected leave and superannuation entitlements and even unfair dismissal protection.

If the person is not an employee, then these rights don’t apply.

So as a business owner, you need to understand what rights apply to the resources you deploy in your business.  If for example, you treat someone as a contractor and they are subsequently deemed to be an employee, you could be up for a lot of back pay and even worse case scenario be convicted of Wage Theft.

Therefore, it is important that you understand the difference.

And whilst there has been various case law that considered this matter, most of this has been overturned by the Closing the Loopholes No 2 legislation that came into effect on 26 August 2024.

This legislation introduced a new test for determining whether the person you are engaging is an employee captured under the FairWork Act or a contractor who can operate outside the FairWork Act.

It is a 2-step process.

Firstly, a person can elect to opt out the new rules.  But this can only be done if the individual worker’s earnings exceed the ‘contractor high income threshold’. For the 2024 – 25 year this is set at $175,000.  An independent contractor is able to revoke the opt out notice at any time, should they wish to do so.

If the person does not elect, (either they don’t want to do or are below the contractor high income threshold), then they are tested on the ‘real substance, practical reality and true nature of the relationship’ between the person engaged and the business.

You can no longer rely on the words of any agreement.  You (and FairWork and the Courts if necessary) must consider:

1. the totality of the relationship between the individual and the person; and
2. in considering the totality of the relationship, regard must be had to not only the terms of the contract governing the relationship but also to other factors relating to the totality of the relationship, including (but not limited to) how the contract is performed in practice.

In practical terms, focus now moves to how the work done by the individual is actually performed and based on what has been considered by FairWork and the Courts.

Factors to consider include:

1. The Amount of Control Over Work: The higher the control the more likely employee than operating independently.
2. Mode of Remuneration: If the person is paid on a set number of hours at an hourly rate is consistent with employment rather than independent contracting.
3. (In)ability to Delegate Work: Can the person delegate work or do they have to do the work themselves.
4. Who provides the Equipment: More provided by the business is more indicative of an employment relationship.
5. Nature of Work: For example, was the work of a professional, trade, or distinct calling that would typically characterize an independent contractor.
6. Key Performance Indicators (KPIs): Are these daily task orientated or outcome based.
7. Contractual Terms: Make sure you don’t have the word employee in the agreement if they are supposed to be a contractor.
8. Lack of Business Independence: Is the person delivering the work operating their own business.

In summary, if you don’t want the risk that someone who think as a contractor is subsequently deemed to be an employee, you need to go and have a look at your arrangements with any “independent contractors”

And don’t for get to consider contractors not located in Australia as this case here shows that even people not located in Australia could be an employee and covered under the FairWork Act.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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If you are a small business and confused about all the changes in workplace laws that came into effect this year, then the free Small Business Peak program may be able to assist you

The Small Business Peak program is a free resource run by COSBOA (Council of Small Business Organisations Australia).  This provides easy to use free resources (fact sheets, FAQs, compliance checklists and more) on workplace relations and other industrial relations changes Australia targeted at small business.

Learn More

To learn more and about the Small Business Peak, click here.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

Click on the below buttons to access free Resources developed by Wayne Wanders, A Real CFO to help your business scale and grow profitably

Want a confidential discussion on your business situation, help with your grant application or to learn more about my Outsourced CFO Services, simply email me at wayne@aRealCFO.com.au or call me on 0412 227 052

As a business owner with 15 or more employees are you aware of the new rules that your employees have around the right to disconnect that come into effect from 26 August 2024?  If not here is a quick recap.  (Note if you are a small business with less than 15 employees, thes new rules don’t come into effect till 26 August 2025).

In effect, under the new right to disconnect laws, employees have the right to “ignore” contact out of business hours in certain circumstances.

You as a business owner or manager still have the right to contact your staff outside of business hours.  There is no law preventing you from sending an email or message at 5pm Sunday afternoon for example.

But, your employee could ignore that email or message at 5pm Sunday and not respond till Monday morning when they are at work.  And you can’t reprimand or punish them for ignoring your email or message, as long as this refusal to respond is not unreasonable.

Now you ask what is unreasonable.  There appears to be no clear cut answer here and factors that should be considered include:

• the reason for the contact
• whether the employee is compensated or paid extra for:
  • being available to be contacted to perform work within a specific period, or
  • working additional hours outside their ordinary hours of work
• the nature of the employee’s role and level of responsibility
• the employee’s personal circumstances, including family or caring responsibilities.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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As a business owner are you aware of the new rules around casual employees that come into effect from 26 August 2024?  If not here is a quick recap.

1. New casual definition. Employees will only be casual if there is no firm advance commitment  to continuing and indefinite work and the employee is entitled to casual loading or specific casual rate of rate (as per their award or contract).  This will be viewed under the real substance of the relationship based on the conduct at the commencement of employment.  Note existing casuals as at 25 August 2024 will generally stay as casuals unless they convert to permanent or otherwise agreed.

2. New conversion to permanent. The employee may issue a notice that they believe they no longer meet the requirements of the casual employment definition.  They can do this 12 months after starting (if the business has less than 15 staff) or 6 months for other businesses.  You the employer has 21 days to respond to either accept or decline the notice.  If accepting, the business must set out the new terms of the employment arrangement.  You can only decline if there are fair and reasonable operational grounds and you must detail these to the employee.  And they have the right to challenge this.

3. New Casual Employment Information Statement (CEIS). As soon as practical after the new casual starts work, they need to be given the new CEIS.  Then for small business (less than 15 employees) another copy after 12 months.  For other employers, another copy after 6 months, 12 months and every 12 months thereafter.  You can get a copy of the new CEIS here (note if you go there before 26 August 2024 you will get the old version – Nov 2022 – and not the new version). 

4. What happens to existing casual staff as at 25 August 2024? They continue to be managed under the existing rules.  If you have less than 15 employees then the business owner does not need to do anything unless the casual asks for conversion to permanent after 12 months of employment.  If you have 15 or more staff, then after 12 months of employment you need to advise them if you are offering to convert them to permanent or not.  They can also request conversion after 12 months of employment.  If they do ask for conversion, this is assessed based on the old rules, not the new rules above. 

You can learn more about the changes to casual employment rules at the Small Business Peak resource hub (a free service operated by COSBOA – Council of Small Business Organisations Australia) which provides easy to use free resources on workplace relations and other IR changes being introduced in Australia targeted at small business.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

Click on the below buttons to access free Resources developed by Wayne Wanders, A Real CFO to help your business scale and grow profitably

Want a confidential discussion on your business situation, help with your grant application or to learn more about my Outsourced CFO Services, simply email me at wayne@aRealCFO.com.au or call me on 0412 227 052

Don’t forget for all pay periods starting on or after 1 July 2024 you need to consider the Fair Work Commission’s 2023 – 2024 annual wage review.

For many employees, the award rate of pay will increase by the higher of $24.10 per week or 3.75%.  When combined with the 0.5% increase in compulsory superannuation, also effective 1 July 2024, this equates to a minimum increase in employee compensation of 4.25%.

Does this mean I automatically have to increase my rates of pay?

No, the announced changes only apply to the minimum rates of pay.  If you pay above award wages, you may not need to pass on any or all of the increase in award rates.

For example if the employee is on $1,000 a week and the revised minimum rates of pay for that person is now $950, there is no legal requirement to increase their pay.  If the revised minimum rates of pay for that person is now $1,020, you may only need to increase their pay by $20 or 2%.

So what do I need to do as an Employer?

You need to take steps to ensure that you comply with the minimum wage rules.  And to do this you will need to do a mini payroll audit.  Here are the steps in this audit:

Step 1 – get a list of all current employees, their current wage rate and their award classification.

Step 2 – obtain from the Fair Work website the revised minimum rates applicable 1 July 2024 of pay for each employee based on their award classification.

Step 3 – compare the current rate of pay per employee with the minimum rate of pay.

Now you have 2 potential outcomes.

Outcome 1 – Their current rate of pay is above the revised minimum rate of pay effective 1 July 2024.  There is no legal requirement to increase this person’s pay.  You can increase it if you want to. This assumes the person does not work unpaid overtime.  If they do, you will need to work out what their annualised wage rate is including unpaid overtime and will need to compare this to the revised minimum rate of pay effective 1 July 2024.

Outcome 2 – The current rate of pay is below the revised minimum rate of pay effective 1 July 2024.  In this situation you need to increase their pay to at least the minimum rate of pay.  You can pay them more, but not less.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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Don’t forget that from 1 July 2024 all your staff are entitled to a minimum of 11.5% superannuation.

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

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Here is my feedback around payday super and the “Securing Australians’ Superannuation Budget 2023-24 Consultation paper”

In conceptual terms I have no issue with the consideration with the employer payment model that an employees’ superannuation should be paid on the same day that their pay is paid into this bank account.   The use of a due date is fraught with danger for an employer as they have no control over the payment process of the clearing house.

However, in practical terms, there could be an issue with achieving the objective of employer payment model being the same day as the employee is paid.

New Employee

Let’s take an example of a business with a weekly pay cycle Thursday to Wednesday and a new employee has their first day of work on a Wednesday.  Now most people will know their bank account, so worst case scenario on the Thursday, the business can calculate and pay the employee without a Tax File Declaration form and withhold the appropriate tax.  The ATO provides a calculator that the business can use to do this.  Therefore it is relatively easy to do.  And if necessary, correct the tax once the Tax File Declaration form is provided.  And in some cases the payment is made outside the payroll system to ensure the employee has their money and the payroll and STP reporting is fixed in the next pay run.

But in respect of superannuation, how does the business pay any money to the employee’s superfund if the employee has not provided their superfund details to the business in the required time frame.  It is my experience that a person’s superfund and their account number is not top of mind.

In my 30+ years of dealing with payroll at numerous businesses, it has sometimes taken many weeks for a new employee to provide their superfund details.  Even if the employee selects the employer sponsored fund, the business still has to know the member number and it is reliant on the new staff member applying for this.

Why should the business be penalised by a SG Charge and forgone tax deduction for paying payday super late, if the employee provides their superfund details late?

Any change to payday super needs to acknowledge and allow the business to deal with employee tardiness.  Possibly the business should be allowed till the first pay period after the employee provides their superfund details to make the payday super payment for that pay period and any other previous pay periods where super was not paid without any penalties being applied by the ATO.

Honest Mistake

Now let’s take an example of the business having the wrong details in their payroll system.

It may be a new employee or an existing employee who has changed funds provides incorrect details (such as a transposition error in member number or the wrong USI for the fund).  It may be an employee transferring to a new account, closing the old one and not telling the business of this.  It may be an honest mistake by the business where the pay system has an input error when the superfund was selected or the member number input.

In some cases, the business may not know these details are incorrect till the clearing house deposits the funds back into the business bank account.  This can take a while, especially of the clearing house has 20 business days to deal with the error.  If the business has made an honest attempt to pay the super on time, why should the business be penalised by a SG Charge and forgone tax deduction for paying super late in these circumstances?

In other cases, I have seen the compete superannuation batch be rejected, pending the resolution of the error.  In one particular case on Xero, the payroll officer had to go through the payroll to try and work out whom the error related.  If the complete batch is rejected, and the business unable to meet their payday super obligation because of an honest mistake, why should the business be penalised by a SG Charge and forgone tax deduction for paying super late in these circumstances?

Any change to payday super needs to acknowledge and allow the business to deal with honest mistakes.  Possibly the business should be allowed at least one full pay period after the mistake is identified to rectify the mistake without any penalties being applied by the ATO.

Intention

The intention of the business needs to be considered in all of this.  Leaving aside the issues noted above, there are other times where the business wants to make payments on time, but can’t due to factors outside their control.

For example, business are reliant on the banking system to transfer both pay and superannuation.  And there have been times where an individual bank has technical issues and the business is unable to make (and receive) fund transfers.   The business has the intention to meet its pay day super obligations but they are unable to do so due to factors outside their control with their bank.

What about the circumstance where the payroll officer is unavailable on payday due to other circumstances.  Say they are in a bad car accident on the way to work.  The business owner has the intention to meet its pay day super obligations but they are unable to do so due to factors outside the business owners’ control.

Why should the business be penalised by a SG Charge and forgone tax deduction for paying super late in these circumstances?

Therefore the intention of the business owner needs to be taken into consideration as to whether penalties would apply.  And you can look at the proposed wording of the Wage Theft provisions in the proposed “Fair Work Legislation Amendment (Closing Loopholes) Bill 2023” which talks about intention.

The legislation around payday superannuation and penalties should be consistent with this legislation and consider the intention of the business.  Therefore if the business had intention to pay on time, but was unable to due to reasonable circumstances, then there should be no penalties applied.

Obviously what is reasonable would be subject to view but in this case should include:

• Unable to pay as the employee has not provided their details
• Honest mistakes by either the employee or employer
• Banking system issues
• Clearing house issues
• Emergency issues such as flooding, bushfires, fires storms etc.
• Internet connectivity issues
• Circumstances where the payroll could not be processed which did not have sufficient time to plan for and accommodate this. For example payroll officer having baby on due date should have been planned for, but having a baby unexpectedly 4 weeks early could not have been planned for.

ATO Discretion

As you can see from the above, there needs to be a mechanism to deal with these issues without the business be penalised by a SG Charge and forgone tax deduction for paying super late in these circumstances.

But this should be specified in any new legislation and not left to the “discretion” of the ATO.  I have seen the ATO in some circumstances deny the discretion for honest mistakes due to the employee providing late or incorrect information.

Business needs certainty around how these things will be handled.  The ATO should have the right to “audit” any such late payment for evidence that the business was not rorting it.  But if the business complies with the defined time periods to resolve these issues, and has the intention to comply, the ATO accepts this.

Voluntary Small Business Wage Compliance Code

In order to help small business who may not have the same resources as larger organisations. Consideration should be made to include payday super in any Voluntary Small Business Wage Compliance Code that may be enacted as part of the proposed “Fair Work Legislation Amendment (Closing Loopholes) Bill 2023”.

Superannuation Funds Administration fee

By moving to this model of payday super, Superfunds need to be monitored to ensure any increases in administration fees from receiving significantly more payments, does not eat away any benefits from the member getting paid earlier.

My Experience

I have been a fully qualified Chartered Accountant for over 35 years.  The last 20 + of these years has been working one on one with small and medium business owners as a trusted business advisor and their outsourced Chief Financial Officer (CFO).  During this time,  I have dealt with the payrolls of many different small business and have seen the issues that come up with getting timely and correct superannuation information.

Summary

As noted conceptually pay day super can be a way to improve the superannuation outcomes for individuals.  But this needs to be done without putting a business, especially small business who rely on a bookkeeper to process payroll, at risk of penalties for paying super late in when the employee is tardy, there is an honest mistake, or other factors outside the business’s control adversely impact on their ability to meet their payday super obligation.

Wayne Wanders is an experienced Business Advisor skilled in analysing business financial performance and cash flow.  Contact Wayne below for a free no obligation session.

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