Starting 1 January 2025, under the Closing Loopholes reforms, wage theft will be a criminal offence for employers who intentionally underpay their employees. If you’re a small business owner (with fewer than 15 employees), this change might sound intimidating. But don’t panic! There’s a safety net in place: the Voluntary Small Business Wage Compliance Code (the Code). If you unintentionally underpay someone, following the Code could help protect your business from criminal prosecution, though civil penalties may still apply.
Let’s break down what this all means for you and how to keep your business on the right track.
What’s Changing with Wage Theft Laws?
Under the Closing Loopholes reforms, starting in 1 January 2025, wage theft—meaning intentionally underpaying employees—will be criminalized. If your business is found guilty of intentionally underpaying staff (whether it’s wages, penalty rates, overtime, or superannuation), the consequences are huge. We’re talking up to 10 years in prison or fines of up to $8.25 million.
What Is the Voluntary Small Business Wage Compliance Code?
For small businesses with fewer than 15 employees, there’s some good news. If you unintentionally underpay an employee, the Voluntary Small Business Wage Compliance Code is there to protect you from criminal prosecution. As long as you can demonstrate that the underpayment was not intentional and that you’ve made a reasonable effort to comply with pay laws, you might not face criminal charges.
The Code encourages small businesses to regularly check pay practices, stay updated on pay rates, and fix any mistakes as soon as they’re discovered. If an underpayment happens, as long as it was unintentional and you act quickly to correct it, you’ll be protected from criminal charges (though civil penalties may still apply).
Except....
It’s important to note that there are also exceptions to the application of criminal penalties for underpayments. For example, employers who are sole traders, partnerships, or unincorporated entities in specific states—such as New South Wales, South Australia, Queensland, Tasmania, and Victoria—are exempt from criminal prosecution for certain types of underpayment. Specifically, criminal penalties do not apply to underpayments of superannuation, long service leave, leave connected to being a victim of a crime, or jury duty leave in these regions.
Additionally, certain employees working for Victorian State Government bodies or Tasmanian local governments are also excluded from criminal penalties for underpayment related to superannuation and long service leave. These exceptions mean that while businesses in these regions may still be liable for civil penalties (such as fines), they will not face criminal prosecution for underpayments related to these specific entitlements.
Furthermore, businesses that demonstrate cooperation and a willingness to correct mistakes may be eligible to enter into a cooperation agreement with the Fair Work Ombudsman. This agreement can offer further protection against criminal prosecution, provided the business is proactive in addressing the issue and preventing future occurrences.
What Does This Mean for Your Small Business?
So, what does this actually mean for you as a small business owner? If you intentionally underpay your staff, you could be facing some serious legal consequences, including criminal charges. But if you accidentally make a mistake (which can sometimes happen to the best of us), the Voluntary Small Business Wage Compliance Code offers protection, as long as you can prove that the underpayment was unintentional.
This is a big deal because, as long as you act in good faith and make reasonable efforts to pay your employees correctly, the Voluntary Small Business Wage Compliance Code could protect you from criminal prosecution. In other words, the Code serves as a shield for small businesses, ensuring that unintentional underpayments don’t result in criminal charges. However, it’s important to note that even with this protection, your business can still face civil penalties—such as fines or compliance notices—if an issue arises.
Further, for employers in the categories listed as exceptions (such as sole traders or businesses in specific regions), while they are still responsible for correcting underpayments and may face civil penalties (like fines), the criminal offence provisions do not apply to certain types of underpayments, particularly superannuation and long service leave.
These exceptions emphasize the importance of employers being aware of regional and employee status differences to fully understand their obligations under the Fair Work Act
In short: as a small business owner, you don’t have to worry about going to prison for a genuine mistake, but you still need to stay on top of your pay practices to avoid civil penalties.
How to Stay Compliant: Key Steps for Small Business Employers
To protect your business from civil and criminal penalties, small business owners must stay diligent and proactive when it comes to paying employees correctly. Below are clear steps you can take to ensure your business is in line with the law:
Ensure Correct Pay Rates and Entitlements
First, check that you’re paying your employees according to the correct award or enterprise agreement. This is the foundation of compliance. To do this, you could also consider conducting a wage audit. A wage audit helps identify any discrepancies or areas where employees might not be receiving their correct wages, allowances, overtime, or superannuation. This is the first and most proactive step to avoid future underpayment issues.
Regularly update yourself on minimum pay rates, penalties, and superannuation contributions to avoid underpayment. The Fair Work Commission reviews pay rates annually, and changes usually take effect on 1 July each year.
Classify Employees Correctly
Ensure that employees are classified properly based on their roles, experience, and responsibilities. Misclassification can result in employees not receiving their correct entitlements.
Maintain Accurate and Up-to-Date Records
Keep detailed records of employee pay, hours worked, and any changes in their role or classification. You’re required to maintain these records for seven years.
Pay slips should be provided within one working day of payday, and they must include all the required information: pay rates, hours worked, allowances, and deductions. This ensures transparency and compliance with the Fair Work Act.
Stay Informed and Updated on Wage Laws
Make a concerted effort to stay updated on any changes in legislation, including guidelines on wage rates and legal obligations.
Additionally, if your employee’s job description changes or if they take on new duties, you must reassess their pay and classifications. Staying up to date with both employee circumstances and changes in legislation ensures you are paying correctly.
Know Your Rights and Obligations in Different Regions
If your business operates across different regions, it’s crucial to understand the specific laws that apply in each location. Different states and territories may have varying rules around employee entitlements, particularly for sole traders and certain state government employees. For instance, superannuation and long service leave payments may be treated differently depending on the state or the employee’s role.
Make sure you’re familiar with the exceptions to criminal penalties in certain regions (e.g., Victoria or Tasmania) where some specific entitlements may not be subject to criminal prosecution for underpayment. Always check the latest regulations for each state to ensure compliance.
Promptly Address Underpayments
If you identify that an employee has been underpaid, take immediate action to backpay them. The Voluntary Small Business Wage Compliance Code suggests that fixing mistakes as soon as they’re identified is key to avoiding criminal prosecution.
Proactively communicate with your employees, explaining what happened and what steps you’re taking to correct the issue.
Seek Reliable Advice
If you’re unsure about pay rates, employee classifications, or other entitlements, it’s always wise to seek advice from trusted sources.
Using these resources will ensure you’re always following the most up-to-date laws and guidelines.
Document Your Compliance Efforts
Keeping evidence of all steps taken to comply with pay obligations is important. This could include emails where you asked for advice, records of pay reviews, or documentation of actions you’ve taken to fix underpayments.
The Voluntary Small Business Wage Compliance Code provides protection if the underpayment was unintentional but being proactive and diligent will minimize your risk and show that you’ve acted in good faith.
The Bottom Line
Wage theft will become a criminal offence in 2025, but the Voluntary Small Business Wage Compliance Code offers small businesses a safety net. If you unintentionally underpay employees, following the Code could protect you from criminal prosecution.
To keep your business compliant, stay on top of pay practices, regularly review wages, and fix any mistakes quickly. By being proactive and transparent, you’ll protect your business from hefty fines and keep your employees happy.
At the end of the day, it’s all about making sure your business is doing its best to pay employees fairly and correctly. Stay informed, and don’t hesitate to ask for help if you need it. With the right steps, you’ll avoid the risk of penalties and ensure your business runs smoothly.
Workplace Wizards’ consultants and lawyers are specialists in workplace compliance and wage audits, bringing a wealth of experience in helping businesses navigate complex legal obligations. We assist organizations in ensuring compliance with modern awards, enterprise agreements, and other employment standards, reducing risks and safeguarding your operations.
Our expertise includes conducting thorough wage audits to identify and rectify discrepancies, ensuring your practices align with Fair Work legislation and industry standards. We also provide practical support in addressing compliance issues related to confidentiality, disciplinary actions, and fair treatment, ensuring your workplace operates within the bounds of the law.
With our guidance, you can have confidence in meeting your compliance obligations and maintaining a legally sound workplace.For a quick, no-obligation consultation about how we can help your business with this matter, call Workplace Wizards today on 03 9087 6949 today or email at support@workplacewizards.com.au. Our team of Melbourne based employment contract lawyers and consultants can answer your queries, explain the particulars of employment contracts, and discuss what actions your business could be taking.
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