Starting 1 January 2025, intentional underpayment of wages or employee entitlements will become a criminal offence under new laws introduced by Fair Work. Employers found guilty of deliberate wage underpayment may face fines, prison time, or both.
What does this mean for employers?
The Fair Work Ombudsman (FWO) will investigate suspected underpayment offences and can refer cases for criminal prosecution. This change is designed to strengthen protections for employees and hold businesses accountable for intentional wage breaches.
For businesses, the message is clear: underpayments—especially intentional ones—will not be tolerated. While mistakes happen, failing to address or prevent them could have severe consequences.
Protections for Small Businesses
If you’re a small business owner, there’s good news: protections exist to avoid criminal prosecution. This includes complying with the new Voluntary Small Business Wage Compliance Code (the Code).
The Code acknowledges that underpayments can occur due to genuine mistakes rather than deliberate intent. It provides a “safety net” for small businesses that take reasonable steps to comply with wage obligations, rectify errors promptly, and demonstrate accountability and transparency. By following the Code, businesses can avoid the risk of criminal prosecution.
- The FWO cannot refer a small business for criminal prosecution if they’ve met the requirements of the Code for addressing underpayments.
- To help employers, Fair Work has released a guide outlining the Code and how businesses can comply. Download a copy of the Voluntary Small Business Wage Compliance Code here.
Practical Steps for Employers to Stay Compliant
Avoiding wage underpayment starts with strong systems and regular checks. Here’s how businesses can prepare for the changes:
1. Audit Your Payroll Systems
– Conduct a thorough payroll review to identify any inconsistencies or mistakes.
– Compare employee pay against applicable modern awards, agreements, or contracts.
– Use external auditors or payroll experts if needed.
2. Understand the Voluntary Wage Compliance Code
– Download the Code and read more on Fair Work guide to understand the requirements.
– Make compliance a priority—rectify any underpayments immediately and document your efforts.
3. Train Your Payroll Teams
– Ensure staff are familiar with modern award classifications, penalty rates, and entitlements.
– Provide ongoing training to prevent errors, especially when awards or agreements change.
4. Invest in Technology
– Use payroll software that is regularly updated to reflect award changes and ensure compliance.
– Automate processes where possible to reduce manual errors.
5. Be Transparent with Employees
– Communicate openly with your employees if errors occur. Fix underpayments promptly, document the process, and inform affected team members of the resolution.
Why it Matters
These changes mark a shift in how wage compliance is viewed across all industries. For small businesses, the Code provides an opportunity to address mistakes without facing criminal prosecution. However, businesses that fail to act risk not only severe financial penalties but also long-term damage to their reputation and employee relationships.
Don’t Wait for 1 January 2025. Now is the time to ensure your business is compliant and protected. By adopting the Voluntary Small Business Wage Compliance Code, you can safeguard your employees, your reputation, and your business’s future.
