Small businesses that unintentionally underpay staff could be spared criminal prosecution by proving they genuinely tried to understand and carry out their payment obligations, according to the new Voluntary Small Business Wage Compliance Code.
Wage theft becomes a criminal offence across Australia from January 1, 2025.
But the Fair Work Ombudsman (FWO) will not refer small businesses that underpaid staff for criminal prosecution if they abide by the Code.
That long-awaited document was released Monday.
Authorised by Minister for Employment and Workplace Relations Murray Watt, the Code acts as a checklist for employers trying to steer clear of wage underpayment — and hefty fines or prison time.
It spells out a “non-exhaustive” list of factors the FWO must consider before referring small businesses and company directors for criminal prosecution.
First, the FWO must consider if the business genuinely tried to educate itself on its payment obligation.
That includes evidence the small business assessed the relevant modern award or enterprise agreement, accessed information or guidance from the FWO, sought advice from lawyers or consultants, or used information provided by trusted industrial associations.
Second, the FWO must consider if the business genuinely tried to stay on top of its obligations, adjusting to changing legislation, enterprise agreements, or terms in the modern award system.
The FWO will also look favourably on small businesses that backpay staff of their own accord, while assessing how quickly those steps were taken, and if the business put measures in place to limit future underpayments.
The Code also lists extra factors that could steer the FWO’s decision.
Notably, it says the FWO must consider if “ambiguity or competing interpretations of obligations in relation to employee pay” contributed to wage underpayment, acknowledging the complexity of hiring workers.
New guidance materials from the FWO indicate that non-compliance with the Code will not automatically result in referral for criminal prosecution.
If businesses “demonstrate a willingness to cooperate and fix any issues,” the FWO may instead consider a cooperation agreement keeping it from referring the employer for possible criminal prosecution.
The FWO may still seek civil penalties against small businesses underpaying staff wages, regardless of compliance with the Code.
Council of Small Business Organisations Australia (COSBOA) CEO Luke Achterstraat welcomed the Code, calling it a welcome resource to help small businesses navigate the incoming wage theft law.
COSBOA has long argued employers struggle with the complexity of hiring workers, and Achterstraat said the Code acknowledged those challenges.
“In a lot of instances, small businesses or small employers will be acting in good faith or acting with goodwill, but can potentially fall into pitfalls due to the complexity and the opaqueness of the system,” he said.
The organisation is one of several industry groups to receive government funding to help businesses understand their workplace obligations, and intends to provide its own guidance to businesses in relation to the Code.
While welcoming the Code, COSBOA maintains the definition of small business in the Fair Work Act should be raised from 15 to 50, which would expand the Code to many more medium-sized employers.
Minister Watt disagrees with the idea, telling ABC RN in October that expanding the definition would also remove unfair dismissal protections for a significant number of SME workers.
In its latest policy wishlist, released this week, COSBOA also calls for a Fair Work Commission ‘triage’ service, helping the Fair Work Commission weed out what Achterstraat called “vexatious” claims made against small business employers.
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
