It’s now a criminal offence to intentionally underpay your employees.

Paying your employees the correct amount is an important part of being an employer. To tighten up this process, the Australian Government has just introduced a new Voluntary Small Business Wage Compliance Code, that makes underpaying your employees a criminal offence.

So, what counts as an underpayment? And are there any exemptions to the new Code?

What is the Voluntary Small Business Wage Compliance Code?

From 1 January 2025, intentionally underpaying an employee’s wages or entitlements can be a criminal offence. This doesn’t include honest mistakes – for example, if accidental payroll errors are made. But the new Voluntary Small Business Wage Compliance Code (or the Code) does now make it an offence to intentionally underpay a team member.

The Fair Work Ombudsman can investigate suspected criminal underpayment offences and refer suitable matters for criminal prosecution. If, as an employer, you’re convicted of a criminal offence, a court can impose fines, prison time, or both.

What constitutes ‘underpaying an employee’?

No employer wants to be faced with criminal proceedings for failing to pay an employee correctly. So, what does underpayment mean in this specific context?

Underpayment may include:

• Not paying sufficient wages, including penalty rates, overtime rates and allowances (or not paying them at all).
• Not paying amounts required by the applicable award or enterprise agreement.
• Not paying other entitlements, for example superannuation for some employees.

Are there any exemptions?

There are some exemptions to the new Code. In some limited circumstances, the criminal offence won’t apply to particular entitlements.

The exceptions broadly apply to:

Employees in New South Wales, South Australia, Queensland, Tasmania and Victoria who are employed by sole traders, partnerships, other unincorporated entities, or non-trading corporations. Most Victorian state government employees. Tasmanian local government employees.

Get up to speed with the Code and wages compliance

You can get a full breakdown of the new Code, and your wages compliance responsibilities as an employer in the new Guide To Paying Employees Correctly.

If you’re concerned about meeting this new compliance checklist, or how it will affect your day-to-day payroll activities, please do get in touch with the team.