New Wage Theft Laws: The Hidden Risks of Offshore Paraplanning

As of 1 January 2025, Australia has enacted legislation criminalising intentional wage theft, marking a significant shift in workplace law. This development holds particular relevance for financial advisers who engage offshore staff through contracting or employment arrangements. Understanding the implications of this law is crucial to ensure compliance and uphold ethical standards within the industry.

Understanding the New Wage Theft Legislation

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced a criminal offence for employers who intentionally underpay their employees. Under this law, employers commit an offence if they deliberately fail to provide employees with their full entitlements, including wages, allowances, superannuation, and leave entitlements, by the due date. Penalties for such offences are severe, with individuals facing up to 10 years’ imprisonment and fines exceeding $1.6 million, while companies may incur fines up to $8 million.

Implications for Offshore Staffing in Financial Advisory Firms

Financial advisory firms often employ offshore staff, such as paraplanners, to manage costs and access a broader talent pool. However, recent legal developments indicate that these offshore workers might be considered employees under Australian law, subjecting employers to the same obligations as for domestic staff.

A notable case illustrating this is Ms Joanna Pascua v Doessel Group Pty Ltd, where the Fair Work Commission (FWC) ruled that a Philippines-based worker, engaged as an independent contractor, was in fact an employee unfairly dismissed by her Australian employer. The FWC’s decision was influenced by factors such as the nature of the work, the level of control exercised by the employer, and the terms of the contract. This case underscores the importance of assessing the true nature of working relationships, beyond contractual labels.

Determining Employment Status

The classification of offshore workers as employees or independent contractors depends on various factors, including:

• Control: The degree of control the employer has over the worker’s tasks and how they are performed.
• Integration: Whether the worker is integrated into the employer’s business operations.
• Contractual Terms: The specifics of the contract, including exclusivity, work hours, and provision of equipment.

The Fair Work Act’s recent amendments emphasise assessing the real substance and practical reality of the relationship, rather than solely relying on contractual terms.

Risks of Misclassification

Misclassifying offshore workers can lead to significant legal and financial repercussions, including:

• Back Payment of Entitlements: Employers may be liable for unpaid wages, superannuation, and other entitlements.
• Penalties: Fines and other penalties for breaching the Fair Work Act.
• Reputational Damage: Negative publicity and loss of trust among clients and stakeholders.

With the criminalisation of wage theft, intentional underpayment due to misclassification could result in criminal charges, making it imperative for firms to carefully evaluate their employment practices.

Best Practices for Compliance

To mitigate risks and ensure compliance with the new legislation, financial advisory firms should consider the following steps:

1. Review Contracts and Agreements: Examine existing contracts with offshore workers to ensure they accurately reflect the nature of the relationship.

2. Assess Employment Relationships: Evaluate the degree of control and integration of offshore workers to determine if they should be classified as employees.

3. Implement Robust Payroll Systems: Ensure that all employees, including offshore staff classified as employees under Australian law, receive their full entitlements promptly.

4. Seek Legal Advice: Consult with legal professionals specialising in employment law to navigate the complexities of the new legislation and its application to offshore staffing arrangements.

5. Stay Informed: Keep abreast of updates from the Fair Work Ombudsman and other relevant authorities regarding workplace laws and compliance requirements.

The criminalisation of wage theft in Australia represents a significant change in the legal landscape, particularly for financial advisory firms employing offshore staff. By proactively reviewing and adjusting employment practices, firms can ensure compliance with the new laws, uphold ethical standards, and maintain the trust of their clients and employees.

Offshoring will always play a role, and certainly, there are ways to engage with offshoring that will add value to a business. However, now is the time to re-consider if remaining compliant with these laws means that your current outsourcing model is still delivering optimal strategic and financial returns.

You may well find that speaking to Mutual Plans and outsourcing a little closer to home will now offer the broader suite of benefits.