Wage Theft and the Voluntary Small Business Wage Compliance Code

As a business owner are you aware that from 1 January 2025, intentional under or late payment of certain wages or entitlements, what the media and many call “wage theft”, can be a criminal offence.

And if found guilty under a criminal court of this, you could personally face jail time and / or a significant personal or company fine.

So here are some things you need to know to about these new laws and how you can minimise your risk.

What late or under payments are covered?

The wage theft laws cover all payments made to your employees for services rendered other than:

• superannuation contributions
• payment for taking long service leave payments
• payment for taking leave connected with being the victim of a crime
• payment for taking jury duty leave or for emergency services duties.

Note the wage theft laws generally apply to incorporated businesses.  As such if you are a sole trader, partnership, other unincorporated entities, or non-trading corporation that has employees in NSW, SA, Qld, Tas and Victoria, these laws will not be applied to you.

Intentional vs Mistake

The wage theft laws are specific so that they only deal with where you, or someone in your business, has intentionally done something that intentionally results in an any covered payments not being paid on or before the day they were due.

The key word here is intention.  This is defined under section 5.2 of the Criminal Code and how the courts interpret this.

It is pretty obvious when someone clearly intends, for example, to pay an under the award rate of pay.

But what about other instances, such as paying a person the wrong rate of pay.  Was that intentional or an honest mistake?

And this now goes to how the courts interpret intention.  They state that intention is established where a business expressly, tacitly or impliedly authorises or permits, in this case wage theft.  This includes where:

• a business culture existed that directed, encouraged, tolerated or led to non-compliance; or
• the employer failed to create and maintain a business culture that required compliance.

So how do you demonstrate it is not intentional?

It is a bit like the old saying that “ignorance of the law is no excuse”.    You need to actually understand the laws around paying staff, and demonstrate how you, as the business owner, or your staff, keep on top of your obligations to pay people in compliance with the law.

And to help with this the government has issued on 6 December 2024, the Voluntary Small Business Wage Compliance Code.  This code outlines several ways that may indicate a failure to pay the correct payment to an employee is not intentional.  These include:

1. Make reasonable efforts to ascertain correct pay rates and entitlements: This involves considering factors such as modern awards, other relevant instruments, the nature of the business, the employee’s role and duties and classifications of such, and any applicable minimum rates, loadings, allowances, penalty rates, or overtime.
2. Made reasonable efforts to stay up to date with obligations: This includes staying informed about changes in applicable legislation, modern awards, etc that apply to the employee. And staying updated on any changes in the employee’s circumstances, such as role, duties, classification, qualifications, age, hours of work, or location.
3. Seek information or advice from reliable sources such as industry associations, professional bodies, industry professionals like lawyers or consultants, payroll processing services, and resources from Fair Work.
4. Providing information that is reasonably believed to be accurate.
5. Taking reasonable steps to rectify the failure: This includes repaying the amount promptly and taking proactive measures to prevent similar issues in the future..
6. Cooperation with any inquiries or investigations

Other circumstances that may indicate the failure was not intentional include:

• whether the failure arose from a mistake or error in payroll processes or by the banks
• if there was ambiguity in interpreting obligations – I have seen instances where 2 different Fair Work staff give different answers as to which classification for a staff member
• who identified the issue. Was it the employer through proactive review?
• how the employer responded to being made aware of the failure.

What is the process?

The process is that the Fair Work Ombudsman would conduct an investigation.

They then make the decision to refer to the Director of Public Prosecutions or the Australian Federal Police for criminal prosecution if they feel it is appropriate.

But if you are a small business (employing less than 15 staff), as long as you have complied with the Voluntary Small Business Wage Compliance Code noted above, then you won’t be referred for criminal prosecution.  But you may still face civil penalties.

If you employ more than 15 staff, you can still avoid criminal prosecution by entering into a cooperation agreement.  But I expect Fair Work will take the factors in the Voluntary Small Business Wage Compliance Code when they assess whether they will agree to this.

Next steps

If you have not done so already, have a look at the factors above under the Voluntary Small Business Wage Compliance Code and assess how your business would be viewed.    Also, Fair Work have published a “Guide to paying employees correctly and the Voluntary Small Business Wage Compliance Code” which gives you a checklist you can work through.

If necessary, seek appropriate professional advice.

Here is a link to the full Voluntary Small Business Wage Compliance Code and Fair Work guide

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

Click on the below buttons to access free Resources developed by Wayne Wanders, A Real CFO to help your business scale and grow profitably

Want a confidential discussion on your business situation, help with your grant application or to learn more about my Outsourced CFO Services, simply email me at wayne@aRealCFO.com.au or call me on 0412 227 052