The Voluntary Small Business Wage Compliance Code: a safe harbour from criminal prosecution

Why the Code exists

The Fair Work Act now includes provisions making intentional underpayment of employee entitlements a criminal offence. Individuals found to have committed such offences may face imprisonment of up to 10 years from 1 January 2025.

To assist small business employers in demonstrating compliance with their wage obligations and to avoid potential criminal referral, the Fair Work Act enables the creation of the Voluntary Small Business Wage Compliance Code. This Code provides a defined pathway for demonstrating compliance.

Participation in the Code is voluntary. However, it represents the principal means by which small businesses can access the criminal-referral safe harbour offered by the Fair Work Act.

What 'compliance with the Code' looks like

Compliance with the Voluntary Small Business Wage Compliance Code involves demonstrating that a business has taken reasonable steps to pay employees correctly. This encompasses adherence to obligations under the Fair Work Act, modern awards, enterprise agreements, and other relevant instruments. Businesses must actively identify the instruments and classifications that apply to their workforce and then consistently apply the correct rates and penalty rates. Payday Super readiness is a key component of this process.

A crucial element of demonstrating compliance is maintaining accurate records relating to employee wages and entitlements. This allows businesses to track payments, identify potential discrepancies, and facilitate corrections. When errors are identified, the Code requires businesses to act promptly to rectify them and prevent recurrence.

The Fair Work Ombudsman provides further guidance detailing the practical requirements for compliance with the Code. Businesses should refer to this guidance to ensure they are fulfilling their obligations and can demonstrate reasonable steps have been taken.

How the safe harbour operates

The Voluntary Small Business Wage Compliance Code provides a specific protection for eligible small business employers. If a business generally employing fewer than 15 employees adheres to the Code’s requirements, the Director of Public Prosecutions will not refer the business for criminal prosecution in the event of an underpayment of wages. This does not eliminate all potential consequences for wage underpayments.

It is crucial to understand that the Code’s protection is limited to preventing criminal referral. Civil-penalty exposure for underpayments remains. Businesses must still address and rectify any underpayments they have made, and may be subject to civil penalties. You can use the penalty estimator to gain an understanding of potential civil penalty exposure.

The safe harbour does not provide retrospective relief. It does not excuse or negate historical underpayments. The protection applies only to preventing criminal prosecution; it does not absolve the business from the obligation to back-pay any amounts owed to employees.

What small businesses should do

Small businesses seeking to utilise the Voluntary Small Business Wage Compliance Code should begin by familiarising themselves with the Code itself and the related guidance provided by the Fair Work Ombudsman. Understanding the requirements outlined in these documents is the foundational step towards potential safe harbour protection.

To ensure ongoing compliance, businesses should implement a systematic approach to wage management. This includes regularly auditing employee classifications, penalty rates, allowances, and superannuation payments to verify they align with the relevant modern award. A documented self-correction workflow should also be established to address any identified discrepancies.

Payroll-responsible staff require specific training to understand and adhere to the expectations of the Voluntary Small Business Wage Compliance Code. A quarterly pay-audit process will help to maintain accuracy and demonstrate a commitment to compliance.

• Read the Voluntary Small Business Wage Compliance Code
• Audit wage classifications
• Establish a self-correction workflow
• Train payroll staff