Small business employers should be assured that honest efforts to pay the right wages and other entitlements for their employees can protect them from prosecution, now that criminal underpayment laws are in effect.
Fair Work Ombudsman Anna Booth has encouraged small businesses (fewer than 15 employees) to read the regulator's Guide and follow the Voluntary Small Business Wage Compliance Code (the Code) to avoid worry about the criminal offence.
"Genuine mistakes will not be prosecuted under the new criminal underpayment laws that commenced on 1 January," Ms Booth said.
"We understand that small business employers who work diligently to do the right thing by their employees may be concerned about being impacted by the criminalisation of intentional underpayments.
"They should rest assured - the offence applies only to intentional underpayments, and compliance with the Voluntary Code means we can't refer a small business for possible prosecution."
"Employers are encouraged to read the Fair Work Ombudsman's Guide, which outlines steps businesses can take to ensure they're paying employees correctly, including practical tools, a handy checklist, examples and best practice tips, and which explains how the Code will apply."
Both the Guide and the Voluntary Small Business Wage Compliance Code are available on the FWO's website.
The Code took effect from 1 January 2025, in parallel with the criminal underpayment offence, and can be used by businesses under the Fair Work Act that employ fewer than 15 employees.
A small business employer will have complied with the Code in relation to an underpayment if they did not intend to underpay their employee.
The Code provides a non-exhaustive list of examples of actions that a small business employer can take, and reliable sources from which they may obtain information, to demonstrate an underpayment was unintentional.
These actions include (but are not limited to):
- Making reasonable efforts to ascertain the right rates of pay and entitlements for their employee, and reasonable efforts to stay up to date with their obligations related to paying their employee. This includes referring to any award or instrument that applies to the employee and changes made to that award or instrument.
- Considering and relying upon information that the employer reasonably believed to be accurate (such as the employee's role, duties, classification, relevant qualifications, age, hours and location of work).
- Seeking information or advice from reliable sources in relation to paying applicable amounts to the employee. Sources can include industrial associations of employers or employees (i.e. unions); lawyers or professional industrial consultants; payroll processing services; the Fair Work Ombudsman including its website and resources; and the Fair Work Commission (which is separate from the FWO) including its website and resources.
- Taking reasonable steps to rectify any underpayments identified and to remedy any deficiencies in an employer's systems.
"Individual employers' circumstances will be taken into account under the Voluntary Code," Ms Booth said. "Good faith efforts to meet all your employees' entitlements and fix any problems are a focus."
"For instance, if a small business employer proactively undertook an audit of their payroll compliance, and, having found any inadvertent failures to meet their obligations, promptly responded with full back-payments and fixing their systems to prevent further issues, this is an example of conduct that would suggest compliance with the Voluntary Code."
The Fair Work Act states that if the FWO is satisfied that a small business employer complied with the Code in relation to a failure to pay an applicable amount, the FWO must not refer relevant conduct to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for possible criminal prosecution.
"Intentional underpayments are unacceptable, and the Fair Work Ombudsman will investigate and refer for possible prosecution conduct caught by the new criminal underpayment offence. But there is no reason employers can't take reasonable steps to get their compliance right," Ms Booth said.
The criminal underpayment offence provides for significant penalties for those who are found guilty. For a company, the maximum penalties that apply for the criminal underpayment offence are the greater of three times the amount of the underpayment (if the court can determine the underpayment) and $8.25 million, or, if the court can't determine the underpayment, up to $8.25 million.
Individuals who are found guilty could face a maximum of 10 years in prison. If the court can determine the underpayment, individuals can also be penalised up to the greater of three times the amount of the underpayment and $1.65 million, or, if the court can't determine the underpayment, up to $1.65 million.
Employers are reminded that compliance with the Code does not rule out civil remedies.
"Employers who breach workplace laws must remember - the Fair Work Ombudsman can still bring a civil litigation (civil penalties have never been higher), issue a Compliance Notice or accept an Enforceable Undertaking, where criminal prosecution is not applicable," Ms Booth said.
An affected employee or relevant union could also bring a civil litigation.
Separate to the Code, an employer of any size who self-reports conduct that could be a criminal underpayment offence can request to enter a cooperation agreement with the FWO. A guide to cooperation agreements is now on our website.
"The FWO won't refer any conduct covered by a cooperation agreement for criminal prosecution," Ms Booth said.
"Employers of any size remain exposed to civil penalties and reputational risks if they fail to meet workplace obligations. Employers should make use of our range of free resources to ensure hard-working employees are receiving all their legal entitlements."
The FWO's publicly available Compliance and Enforcement Policy has also been updated to reflect the commencement of the criminal underpayment offence. The policy provides information about the FWO's regulatory approach, how we fulfil our statutory compliance and enforcement functions under the Fair Work Act, and sets out the factors we consider when using our compliance and enforcement powers.
Employers can use the FWO's pay calculator and Small Business Showcase.
