The New Era of Wage Theft: Understanding the Voluntary Small Business Wage Compliance Code  

January 9, 2025

The 1st of January 2025 marked the commencement of the new era of ‘wage theft’ being the criminal offence of intentional underpayment of wages and related entitlements under an award, or enterprise agreement or other amount provided under the National Employment Standards.   

While conviction of wage theft carries substantial financial penalties and potentially imprisonment of 10 years, the law offers alternative measures short of criminal prosecution, for resolution of allegations of wage theft. One of these measures is the Voluntary Small Business Wage Compliance Code  

Overview of the Voluntary Small Business Wage Compliance Code 

The law states if the Fair Work Ombudsman (FWO) is satisfied that a small business employer complied with the Voluntary Small Business Wage Compliance Code in relation to a failure by the employer to pay an amount to, on behalf of, or for the benefit of, an employee, the FWO must not: 

  1. refer the matter to the Director of Public Prosecutions or the Australian Federal Police for prosecution; or 
  1. enter into a cooperation agreement with the employer that covers any conduct that resulted in the failure. 

The Code (in the form of a Declaration under subsection 327B (1) of the Fair Work Act 2009) is essentially a guide for small businesses employing fewer than 15 employees to follow to demonstrate genuine effort to comply with the strict obligations under the Act. It is designed to minimize disputes, encourage proactive compliance, and reduce the likelihood of civil or criminal enforcement actions for unintentional errors resulting in underpayment of wage entitlements. 

Key Provisions of the Code 

A small business employer will have complied with the Code if the failure to pay the applicable amount was not intentional, having regard to relevant matters set out in the Code. The relevant matters set out in the Code include whether the employer has done any or all of the following: 

  1. made reasonable efforts to ascertain correct rates of pay and entitlements for the employee; 
  1. made reasonable efforts to stay up to date with the employer’s obligations relating to the payment of applicable amounts to, on behalf of, or for the benefit of, the employee; 
  1. considered and relied on information about the employee that the employer reasonably believed was accurate (such as the employee’s role, duties, classification, relevant qualifications, age, hours of work and location of work) in relation to the payment of applicable amounts to, on behalf of, or for the benefit of, the employee; 
  1. sought information or advice from reliable sources in relation to the payment of applicable amounts to, on behalf of, or for the benefit of, the employee; 
  1. provided information that the employer reasonably believed was accurate in seeking that information or advice; 
  1. taken reasonable steps to rectify the failure to pay the applicable amount after becoming aware of the failure; 
  1. cooperated with any relevant inquiry or investigation by the Fair Work Ombudsman after becoming aware of the failure to pay the applicable amount. 

Note: the list provided in the Code is non-exhaustive and other genuine efforts made by small business employers may also be taken into consideration. 

The Code includes a further detailed checklist to assess whether the employer has actually complied the key provisions including: 

  1. Efforts to Ascertain Correct Pay Rates: Employers should reference relevant awards, agreements, and classifications to ensure compliance with pay entitlements, including minimum wages, loadings, allowances, and penalty rates. 
  1. Staying Updated on Obligations: Regular monitoring of legislative changes, award variations, and employee circumstances is necessary to maintain compliance. 
  1. Seeking Reliable Advice: Employers are advised to consult reliable sources such as the Fair Work Ombudsman, lawyers or industrial associations to clarify obligations. 
  1. Proactive Rectification: Taking prompt corrective action upon identifying underpayment demonstrates a commitment to rectifying mistakes and preventing recurrence. 

Adherence to the Code 

The advantage of adherence to the Code is the FWO cannot refer the matter to the Director of Public Prosecutions or the Australian Federal Police for prosecution as a criminal offence or force the employer into a cooperation agreement if satisfied that an employer complied with the Code. 

However, employers may still face civil proceedings for underpayment as strict liability applies to the requirement to correctly pay amounts payable under applicable awards, enterprise agreements and the NES.  

It is not clear as to whether any admissions made in mitigation to avoid criminal prosecution by adherence to the Code are admissible as evidence in setting penalties in civil proceedings for the same matter. Employers may still be forced into voluntary enforceable undertakings if they wish to avoid civil actions and further penalties. 

Lessons for Employers 

The criminalisation of underpayment of wages and related entitlements as ‘wage theft’ represents the most serious legal challenge to Australian employers in our lifetime. Although conviction of the crime of wage theft requires the prosecutor to prove an intention to underpay, no fair business owner wishes to be subjected to such a prosecution. 

Consequently, all Australian employers and especially small business employers, should undertake preventative measures to minimise the risk of underpayments and if necessary, remedial action to rectify errors. We recommend employers:  

  • Conduct regular internal audits of payroll systems. Most errors are due to honest mistakes or inaccurate coding of wage items. 
  • Stay informed. Subscribe to applicable Fair Work Ombudsman pay guides as they detail minimum hourly rates for ordinary, casual, weekend, evening, shift loadings and public holiday and overtime  
  • Obtain legal advice before employing staff. Wages are dependent on a thorough understanding of the circumstances of each employee and business. A contract of employment correctly setting out the wage entitlements is fundamental to compliance.  
  • Respond to employees pay queries promptly. Resolving a grievance inhouse is better than having to deal with unions or the FWO 
  • Do not respond to allegations of wage theft until obtaining legal advice. The FWO is looking for specific evidence of intention to commit wage theft. How you respond is critical to a defence against the allegation. 

Further Advice 

Maguire Legal is able to advise and represent Australian small businesses on aspects of employment and workplace relations law. Our Maguire Legal Subscribe service is designed to support small businesses in the management of all responsibilities under Australian employment law. Please visit maguire.com.au and contact us here for further information. 

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