New penalties for underpayment of wages (including criminal convictions) and shield laws for small business employers

Protecting small businesses from criminal convictions for “wage theft”

These new laws apply to all employers; however, small businesses (that is, those with less than 15 employees) may elect to comply with the Voluntary Small Business Wage Compliance Code to assist their business in safeguarding against potential criminal liability. Businesses with 15 or more employees may also implement the principles of the Voluntary Small Business Wage Compliance Code, however they do not receive the same safeguards as small businesses should there be an underpayment of wages.

A practical guide for small business compliance

The code is supported by a comprehensive guide providing practical advice, tools, and resources to help small businesses comply with wage obligations. These include:

• Finding relevant awards or agreements to ensure accurate pay structures.
• Proper classification of workers to meet award and agreement requirements.
• Identifying pay rate changes and entitlements that might arise over time.
• Meeting pay slip and record-keeping obligations in accordance with legal requirements.
• Staying updated on workplace laws to adapt to legislative changes.

To facilitate adoption, the guide provides a checklist, examples, and tips to help businesses implement the code’s recommendations.

Shielding small businesses from criminal liability

Small business employers who adhere to the code gain significant protection:

• The FWO will not refer compliant businesses for criminal prosecution under the wage theft provisions.
• However, non-criminal enforcement actions such as compliance notices, enforceable undertaking or civil litigation remain possible.

Importantly, businesses are not required to meet every aspect of the code to gain its protections. The FWO will consider the overall circumstances and efforts of a business in determining compliance.

What about employers who are not small business employers (15 or more employees)

Employers, other than small business employers, do not receive the Shield benefits even if they follow the code. However, Fair Work Ombudsman Anna Booth has identified that the voluntary code serves as a “blueprint for every employer in Australia”, as it includes extensive educational materials to help businesses align with workplace laws.

The mere need for such a code is, in our view, a recognition of the complexity of the current wage setting system. Employers of all sizes, in our experience, struggle with identifying if a Modern Award applies, and if a Modern Award applies the correct classification in the Award for each employee.  Where business have changed hands (sale, merger etc), many employers are unaware that Enterprise Agreements entered into by the previous employer may transfer with any transferred employees and must continue to be honoured by the new employer for those transferred employees.  Unfortunately, the complexity of the system, including the complexity of working out how some Modern Awards actually operate, is resulting in unintended underpayments.  Unintended underpayment, although highly unlikely to be considered to be criminal conduct, must still be identified and rectified and may still result in financial penalties and reputational damage

Because of the complexities, we recommend that employers of all sizes take the introduction of these new provisions, and in particular the increase in penalties (and the prospect of criminal conviction) as an incentive to take the time to ensure that they are currently (and historically) compliant with their wage and conditions obligations. It is always better for employers to actively review their practices and, if they identify an error resulting in underpayments, to voluntarily rectify the identified errors.

Forvis Mazars HR consultants are here to support employers through these changes. Our team offers tailored advice and services to help you navigate the complexities of wage compliance, from interpreting awards and agreements to implementing effective payroll systems, (including compliance audits) and ensuring accurate record-keeping. By partnering with us, we can confidently support and safeguard your business, allowing you to focus on growth. Let us help you stay compliant and ahead of the curve by contacting our team via the form below or on:

Author: Cheryl-Anne Laird

Published: 22/01/2025

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