Voluntary Small Business Wage Compliance Code: Explained
The Voluntary Small Business Wage Compliance Code is designed to help small businesses comply with new wage underpayment laws.
In this article, we cover:
who the Voluntary Small Business Wage Compliance Code (the Code) applies to
how it protects small employers from criminal prosecution,
the steps businesses must take to comply,
what the Fair Work Ombudsman (FWO) considers when assessing compliance, and
why the Code is an essential safeguard for small employers in 2025 and beyond
If the FWO determines a small business has complied with the Code, that business (and its directors, managers, accountants or payroll staff) cannot be referred for criminal prosecution for underpayments. However, they may still face civil enforcement such as compliance notices, enforceable undertakings or fines.
What is the relevance of the Voluntary Small Business Wage Compliance Code?
With the criminalisation of wage theft from 1 January 2025, the risks for small business employers are higher than ever. Under the new amendments:
Individuals can face up to 10 years’ imprisonment
Companies can face fines of up to $8.25 million or three times the underpayment amount.
For many small businesses who have limited resources and personnel support, the Code plays a paramount role in helping them manage payroll and account-keeping obligations. It gives employers operating without dedicated accounting staff a robust framework that guides them towards compliance and gives them the opportunity to prove that they acted in good faith, even if payroll mistakes occurred.
Who Can Access the Voluntary Small Business Wage Compliance Code?
The Voluntary Small Business Wage Compliance Code only applies to small businesses with less than 15 employees. It does not apply to larger businesses (more than 15 employees), independent contractors or those who hire regulated workers.
Moreover, intention is also important. The Code provides a pathway to avoid criminal prosecution for underpayments, as long as those underpayments were not intentional. If a small business is unable to prove that their underpayment was not intentional or if the FWO deems that a small business intended to underpay staff entitlements, the Code would not apply to them.
According to the Australian Bureau of Statistics, small businesses accounted for 97% of all businesses in Australia in 2024 and employed around 5 million workers in 2023. With such a large segment of the workforce dependent on small businesses, the Code offers much-needed reassurance that employers who have underpaid their employees but have made a genuine attempt to comply with the Code otherwise, will not face criminal consequences for honest mistakes.
If you satisfy the following criteria, the Voluntary Small Business Wage Compliance Code will likely apply to you:
You are a small business with fewer than 15 employees; and
You have underpaid your employee/s; and
You are able to demonstrate that your underpayment was not intentional.
How Does the Code Protect Employers?
Small businesses who are deemed by the FWO to be compliant with the Code cannot be criminally prosecuted for underpayments under the Fair Work Act 2009 (Cth) (Fair Work Act). This security coverage extends not only to the business itself, but also to its directors, managers and payroll staff.
However, the protections offered under the Code do not safeguard employers from all forms of sanctions. Employers may still face civil action even if the Code applies to them. The FWO, employees or unions could pursue compliance notices, enforceable undertakings or court-ordered penalties. This means that under the Code, employers will be exempt from imprisonment or criminal fines, but not from making repayments or facing civil consequences.
What does this mean?
Small businesses might avoid criminal prosecution by complying with the Code but will still need to back-pay affected staff and potentially pay civil penalties.
What Does Compliance with the Code Look Like?
The Code requires businesses to act in good faith and use reasonable effort. The FWO looks at the “overall picture” of whether the business genuinely tried to pay employees correctly.
Here are a few of the key things businesses should do in order to comply:
Check pay obligations: confirm awards, enterprise agreements and correct employee classifications.
Stay up to date: monitor changes such as the annual minimum wage increase (which occurs every July).
Correct mistakes quickly: back-pay employees promptly once an error is found.
Prevent recurrence: update payroll systems, staff training or seeking professional advice.
What Factors Will the Fair Work Ombudsman Consider?
When deciding whether a small business has complied with the Code, the FWO takes into account whether the employer:
Tried to ensure the employee was paid the correct wages and entitlements. This might look like:
Checking the modern award or other industrial instrument that applies to the employee.
Looking at other legal rights to pay under the Fair Work Act.
Taking into account the type of business they run.
Considering the employee’s actual role and duties.
Identifying the correct classification for the employee’s role.
Made an effort to stay up to date with their legal obligations about pay. This includes:
Keeping track of changes to workplace laws and how those laws are interpreted.
Keeping up with changes to the relevant modern award or industrial instrument, including updates made by the Fair Work Commission (FWC).
Staying across changes to the employee’s own circumstances, such as their job role, duties, classification, qualifications, age, hours of work or where they work.
Used accurate information about the employee when working out pay. This includes:
Checking things like:
minimum pay rates;
allowances and loadings;
penalty rates and overtime;
any other separately listed entitlements; and
special pay arrangements such as annualised salaries or piece rates.
Sought advice or information from reliable sources about pay obligations. Employers can do this by:
Consulting employer or employee associations, or other relevant professional bodies.
Seeking advice from industrial relations professionals, such as lawyers or workplace consultants.
Engaging payroll processing services for accurate calculations.
Gave accurate information when asking for that advice. This looks like:
Providing correct details about the business, such as industry, size, type of operations and types of roles and classifications within the business.
Being upfront about existing pay practices or systems, such as annualised salaries, allowances, or use of payroll software.
Giving current and complete information about any workplace agreements or policies relevant to pay.
Took prompt steps to fix any underpayment once they became aware of it. Including:
Repaying any money owed to or for the employee/s.
Acting quickly to fix the mistake once it was noticed.
Preventing similar problems in the future, such as seeking advice from trustworthy sources and fixing any errors in the employer’s systems.
Cooperated with the FWO if there was an inquiry or investigation. This involves:
Responding to requests for information within reasonable timeframes.
Providing accurate and complete records when asked, such as timesheets, payslips, or contracts.
Communicating openly and honestly with Fair Work Inspectors.
The Code recognises that small businesses often face unique challenges.
Not every factor must be satisfied and no single factor is decisive. Even if an employer fails one aspect (for example, not subscribing to Fair Work updates), they may still show compliance by acting quickly in other ways. What matters most is whether the employer took reasonable, proactive steps to try to pay staff correctly and acted quickly once an issue was found.
Statistics show that wage underpayment is widespread in Australia. A 2023 Senate inquiry found that up to 3 million workers may have been underpaid in recent years, often due to payroll errors and misinterpretation of awards. Many of these cases involve small businesses that lack dedicated HR teams. The Code directly addresses this problem by recognising the genuine difficulties small employers face in navigating complex wage laws.
Key Takeaways
The Voluntary Small Business Wage Compliance Code is a vital safeguard for small employers in NSW and across Australia. It ensures that unintentional mistakes don’t escalate into criminal prosecutions, provided businesses can show they acted in good faith, corrected errors quickly and put compliance systems in place.
With the new criminal underpayment offences, the Code offers small businesses peace of mind, but it is not a free pass as it does not rule out civil enforcement options.
For small businesses, the message is clear:
Take proactive steps to check pay rates
Stay up to date with workplace law changes
Act quickly and transparently if an underpayment occurs
Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.
We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.
If you are a small business in NSW concerned about underpayments or wanting to ensure you are compliant with the Code, Empirical Legal can help reduce your legal risk.
Reach out to Empirical Legal today.