New Compliance Code Offers Assurance for Small Businesses

The Voluntary Small Business Wage Compliance Code Declaration 2024 (the Code) came into effect on 1 January 2025, marking a significant step towards ensuring fair wages and protecting small business employers from criminal prosecution for unintentional underpayments.

What is the Code?

The Code is designed to help small business employers, defined as those with fewer than 15 employees, who inadvertently underpay their employees, offering an avenue to avoid criminal prosecution if they can demonstrate compliance with the Code.

Effective from 1 January 2025, the new wage theft laws under the Fair Work Act 2009 (Cth) criminalise the deliberate underpayment of wages and entitlements. Employers, unless they are exempt from being criminally charged under those provisions, who intentionally fail to pay their employees correctly can face severe penalties, including imprisonment and significant fines. The Code offers a pathway for small business employers to demonstrate that any underpayments were not intentional, helping them avoid potential criminal charges while ensuring employees receive their rightful entitlements.

Compliance Requirements and Framework

Key to the Code are specific steps and behaviours that small business employers must undertake to demonstrate compliance.  Key provisions include:

• Ascertaining correct pay rates and entitlements: Employers must make reasonable efforts to determine the correct wages and entitlements for their employees. This involves referring to modern awards or other relevant instruments, understanding the nature of the enterprise, and considering the role, duties, and classification of each employee.

  
  

• Staying up to date with obligations: Employers must keep themselves informed about any changes to applicable legislation, modern awards, or other applicable industrial instruments that affect employee pay.

  
  

• Seeking information from reliable sources: To assist in compliance, employers are encouraged to seek advice from reliable sources such as lawyers, professional consultants, and resources provided by the Fair Work Ombudsman (FWO) and Fair Work Commission.

  
  

• Taking steps to rectify failures: Upon discovering an underpayment, employers should promptly repay the amount owed and take proactive steps to prevent future occurrences. This includes reviewing and updating payroll processes and systems to avoid repeating mistakes.

  
  

• Cooperating with Inquiries and Investigations: Employers must work constructively with any FWO inquiries or investigations into wage practices, demonstrating a willingness to address and rectify issues.

Small business employers who successfully demonstrate compliance with the Code can receive assurances from the FWO that they will not be referred for criminal prosecution for unintentional underpayments. This protection, however, does not exclude the possibility of civil actions by the FWO or other parties.

Despite the Code being specifically aimed at small business employers, it also provides valuable guidelines that can benefit larger businesses. Adopting the Code's practices can help all employers ensure compliance with wage laws, maintain accurate payroll systems, and foster a culture of transparency and workplace harmony.

Key Takeaways for Employers

• Understand the difference: Recognise the distinction between intentional and unintentional underpayments.  Intentional underpayments can lead to criminal charges, while unintentional ones by small business employers can be mitigated by complying with the Code.

  
  

• Diligence in wage compliance: Make diligent efforts to ascertain correct wages and stay updated on wage laws and employee entitlements to ensure you are paying the correct rates and entitlements. This involves regularly reviewing pay rates and entitlements under applicable award, enterprise agreement or applicable industrial instrument.

  
  

• Proactive rectification: Take proactive steps to rectify any underpayment errors is crucial.  

  
  

• Continuous education and compliance: Stay compliant involves continuous education and updates on workplace laws. You should engage in ongoing learning to adapt to any legislative changes affecting wage compliance.

  
  

• Utilise resources: Take advantage of the tools, checklists, and best practice tips available on the FWO’s website.

  
  

• Seek professional advice: If you are unsure about any aspect of wage compliance, including whether your business and employees are covered by any industrial instrument, seek professional legal advice.

For assistance and guidance, our team at Macroview Legal is ready to assist with any questions or concerns.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. While efforts are made to ensure accuracy, the content is subject to change based on any legislative developments. Readers should consult a legal professional for advice on specific legal matters.