Fair Work Ombudsman (FWO) Anna Booth has reassured small-business employers about new underpayment laws. In a recent statement, Booth said that “honest efforts” to do the right thing will protect employers from criminal prosecution.
The new laws, which came into effect on January 1, 2025, made intentional underpayment of employees a criminal offense. All small-business employers are now subject to the new legislation.
The FWO has emphasised that the tougher laws only apply to intentional underpayments.
“Genuine mistakes will not be prosecuted under the new criminal underpayment laws that commenced on 1 January,” said Booth.
The FWO has released a new Voluntary Small Business Wage Compliance Code to help small-business employers comply with the law. If employers make efforts to comply with the Code, the FWO will not refer them on for criminal prosecution.
The Code takes into account that many small-business employers struggle to navigate complex industrial relations laws, often resulting in accidental underpayments.
What is the Wage Compliance Code, and how do I comply with it?
The Wage Compliance Code is a list of actions that employers can follow to ensure they are compensating employees fairly.
The Code includes steps like “working out correct pay rates” and “seeking information from a reliable source about paying employee entitlement correctly”. If an employer takes actions like these, it’s unlikely they will intentionally underpay employees.
The Code is not a checklist, meaning that small-business employers do not have to satisfy all items. Rather, the FWO will look at steps a business has taken to comply with aspects of the Code.
“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,” Booth explained.
The FWO has also released a Guide to help small-business employers understand and access the Code’s protections.
Penalties for intentional and unintentional offenses
Employers found to have intentionally underpaid employees now face a maximum of 10 years imprisonment. Maximum penalties of up to three times the amount of the underpayment and $8.25 million can apply.
Employers who have unintentionally underpaid employees can still be subject to civil remedies, the FWO emphasised.
“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,” Booth said.
