The risk landscape in employment law: Wage theft, tax and immigration

Designed for legal professionals and advisers, our 'Tax law webinar series' explores an array of risk types to be abreast of when advising and providing strategic solutions to clients. This three-part series aims to streamline your understanding of critical tax considerations in transactions, and flag potential risks for areas that may be outside of your own field of expertise. 

Employment tax, wage theft and immigration compliance are issues that clients may face in their commercial transactions and broader employer obligations. The first part of the series covers the foundations of tax law from an employment perspective.

In this article we explore the key insights and takeaways from the session. 

What is wage theft?

‘Wage theft’ occurs when employees are not paid their legal entitlements. This is impacted by the national employment standards, their employment contracts, modern awards, and enterprise agreements. While the phrase ‘wage theft’ appears harsh, it conveys two important factors: 

1. Employees must be paid their legal entitlements 
2. The criminalisation of ‘wage theft’ involves large fines and potential jail time. 

Common causes of wage theft 

Over the years, trends and triggers leading to underpayments have become clearer. These can include: 

• Low focus on award compliance: The organisation may have a limited focus on award compliance resulting in incorrect award application, incorrect classifications, disregard to the minimum annual award changes, or a lack of regular reviews 
• Foreign investors setting up businesses in Australia: They may be naive to the unique pay landscape or have not implemented global standard processes 
• Global software not specific to Australia’s needs: This could result in rounding of clock-in/clock-out times and a lack of features to facilitate requirements 
• Leave accrual differences when operating in multiple states: Businesses may not consider the varying long-service leave accrual and payment rule differences in each jurisdiction 
• Paying a salary without considering the award annual salary clause: The set-off or offset in employment contracts can often be overlooked 
• Payroll team limitations: Potential payroll issues can include payroll teams being strained, the business may be overly reliant on an external provider, there could be a departure of key payroll members as well as a lack of documenting payroll processes 
• Lack of systems to manage employee complaints: It is critical for a system to be set up in the business to handle employee complaints.

Considering your business or your client’s business and whether it falls into any of the above categories can help in addressing issues and achieving future compliance. 

Criminalisation and its implications 

From 1 January 2025, wage theft will be a federal criminal offence with severe penalties for individuals and corporations. This has led to a significant increase in proactive reviews from Boards seeking assurance. For specific advice on criminalisation, we suggest consulting with employment lawyers. 

Penalties vary for individuals and corporations, and can include: 

• Individuals - up to 10 years imprisonment and/or $1.56 million, or three times the underpayment amount
• Corporations – up to $7.825 million or three times the underpayment amount.

‘4 Pillar’ review 

When applying resources to a sample deep dive pay against award review, we also recommend considering other associated areas for potential review. We refer to these as the ‘4 Pillars’. In addition to a pay against award review, these include: 

• Wage code review – an assessment of wage codes against applicable employment taxes 
• Leave accrual – an assessment of long service leave and annual leave accruals 
• Payroll process review. 

Employment tax

In addition to the requirement to pay employees their correct entitlements, organisations also have an array of employment tax obligations that arise when engaging labour, whether by way of employment relationship or one of independent contracting.

One of the key risks in employment tax compliance is payroll tax, which is a state-based obligation imposed on organisations who pay taxable wages. There are varying rates and thresholds across different jurisdictions in which legislation is broadly harmonised, yet unique differences exist across the states and territories.

Payroll tax obligations arise when taxable wages are ‘paid or payable’. As such, for organisations who have underpaid wages and are required to make backpay payments to remediate impacted employees, this creates a potential disconnect between the date of the backpay, and the technical taxing point of that backpay for payroll tax purposes.

Superannuation guarantee

The superannuation guarantee (SG) regime is governed by the Superannuation Guarantee (Administration) Act 1992 (SGAA) and requires employers to contribute SG on an employee’s ordinary time earnings (OTE).

Similar to wage compliance, the Government takes SG compliance extremely seriously and has introduced numerous measures to strengthen Australia’s superannuation system and improve retirement outcomes. However, the regime contains a number of complexities, some of which we outline below:

• Annual leave loading: Annual leave loading is paid by some employers to their employees when taking annual leave. This is an area that has been heavily scrutinised by the ATO in recent years, and the SG obligations on annual leave loading will depend on whether that leave loading is demonstrably referable to the lost opportunity to work overtime, meaning if an employer is paying annual leave loading to an employee who wouldn't otherwise work overtime, that loading is likely to constitute OTE and attract SG obligations. 
• Wage codes: The configuration of wage codes in payroll systems should be reviewed periodically to ensure they have been set up correctly for SG purposes, and more broadly across the various employment tax obligations. This is particularly important for the upcoming shift to Payday super from 1 July 2026, which will require super contributions to be made at the same time as employee payments, providing the ATO with increased transparency of an organisation’s SG compliance.
• Classification of an employee for superannuation purposes: The SGAA contains an extended definition of an employee, meaning that certain independent contractors engaged by an organisation may be eligible for SG support despite not being an employee at common law. Organisations and employers should be aware of this extended definition and should ensure that all contractors engaged are being assessed for the purposes of determining any SG obligations.

Employer immigration compliance

The increased focus on compliance with enhanced regulations and stringent enforcement is attributed to data matching and information sharing between Home Affairs, Fair Work and the ATO. A range of industries are being targeted, with particular focus on anonymously reported businesses, or those that may have a prior history of non-compliance or employ vulnerable staff. 

Data matching is becoming a powerful and sophisticated tool, which means that any discrepancies or non-compliance can be promptly identified. Dealing effectively with underpayments or non-compliance is critical to avoid further enforcement activity. 

Sponsorship obligations and employer sanctions are the current primary focus of the Department of Home Affairs. Approved sponsors must comply with 14 specific sponsorship obligations, including ensuring market rate pay and following prescribed notification procedures and record keeping requirements, each with its own nuances.

A key update lies in the employer sanctions framework, with significantly increased penalties for breaches. New penalties target employers who coerce or pressure individuals into violating visa conditions. Serious or repeated breaches can result in a five-year prohibition on employing migrant workers, a consequence that can profoundly impact business operations and reputation. 

How BDO can help 

Get in touch with your local BDO tax adviser to discuss how you can advise clients on tax law, payroll compliance and employer immigration compliance. For more details on this session and to explore other tax law topics in our webinar series, register here.