Voluntary Small Business Wage Compliance Code Declaration 2024

The Voluntary Small Business Wage Compliance Code Declaration 2024 gives legal effect to a code under subsection 327B(1) of the Fair Work Act 2009. Its core mechanical operation is to create a safe harbour from criminal prosecution for small business employers who unintentionally fail to pay an applicable amount (wages, allowances, penalty rates, overtime, annualised salary components or any other amount payable under the Act or a fair work instrument). If the Fair Work Ombudsman is satisfied that an employer complied with the code in relation to a particular underpayment, the Ombudsman must not refer the conduct that resulted in that failure to the Director of Public Prosecutions or the Australian Federal Police for possible criminal action under section 327A of the Act. Additionally, the Ombudsman must not enter into a cooperation agreement covering that conduct with the employer. The code does not, however, shield the employer from civil liability: the Ombudsman and others may still take civil action, including compliance notices, enforceable undertakings or court proceedings for civil penalties and back-pay orders. The code becomes operational on 1 January 2025. It is a legislative instrument made by the Minister for Employment and Workplace Relations, not an amendment to the Act itself. Its preamble frames it as encouraging genuine compliance efforts, but the legal effect is narrower: it removes one arrow from the enforcement quiver - criminal referral - but leaves all civil remedies intact. The instrument is structured as a set of non-exhaustive examples of conduct that may indicate a failure was not intentional. Section 6(1) states the core condition: the failure must not have been intentional. Sections 6(3) and 6(4) list matters that may be relevant to assessing intentionality, including making reasonable efforts to ascertain correct rates, staying up to date, relying on accurate information, seeking reliable advice, rectifying the failure after becoming aware, cooperating with the Ombudsman, and other circumstances such as payroll error, ambiguity in obligations, or proactive audit. Sections 7 through 11 elaborate on each of those matters. The instrument does not create a binding checklist; it is explicitly non-exhaustive and the Ombudsman retains discretion to determine satisfaction. The code is voluntary in the sense that an employer may choose not to comply, but the consequence of non-compliance is the loss of the criminal referral shield. In practice, it will function as a de facto standard for small business payroll conduct if criminal risk is to be avoided.

The central concept is the small business employer. The instrument defines it by reference to the Act, which under section 23 defines a small business employer as one that employs fewer than 15 employees at a relevant time. The size threshold is tied to headcount, not turnover or contract value, so micro-businesses with one employee are included. Next is the applicable amount, defined in section 4 as an amount the employer is required to pay under paragraph 327A(1)(a) of the Act and not excluded by subsection 327A(2). That subsection excludes amounts that are the subject of a genuine dispute about entitlement or that the employer has a reasonable excuse for not paying; the code therefore applies only to amounts that are clearly payable and not contested in good faith. The code itself is the set of criteria in Part 2, not a physical document but the standard against which the Ombudsman assesses satisfaction. The critical legal concept is intentional. The code does not require the employer to have acted reasonably; it requires the failure not to have been intentional. The factors listed in section 6 are relevant only to assessing whether the failure was intentional, not to a general reasonableness standard. Thus an employer who negligently underpays but whose conduct is not intentional may still be protected if the Ombudsman is satisfied, even if the employer’s efforts were not optimal. However, the factors such as “reasonable efforts to ascertain correct rates” and “staying up to date” effectively import a negligence-like inquiry into the intentionality assessment, creating a potential conflation. The code also introduces the concept of reliable sources (section 9), which includes industrial associations, lawyers, consultants, payroll services, the Fair Work Ombudsman and the Fair Work Commission. This is not a closed list, but the examples indicate a preference for professional or authoritative sources over informal advice from colleagues or internet forums. The concept of rectification is important: section 10 and paragraph 6(3)(f) treat prompt and proactive steps to repay the shortfall and prevent recurrence as evidence that the failure was not intentional. The code also recognises ambiguity as a circumstance: section 11(b) covers cases where the employer took a reasonable but incorrect interpretation of an obligation, such as a modern award. This is a significant concession to the complexity of Australia’s industrial relations system, where award interpretation is often contested and subject to varying views.

The primary affected group is small business employers as defined: any employer covered by the Fair Work Act 2009 with fewer than 15 employees. This includes companies, partnerships, sole traders, trusts, and other legal entities that employ staff. The size count is determined under section 23 of the Act, which includes casual employees who are regularly and systematically employed, excludes independent contractors, and uses a headcount at the relevant time. The code does not apply to larger businesses (15 or more employees) or to those not covered by the federal system, such as state public sector employers in some jurisdictions. Employees of small businesses are indirectly affected: they lose the possibility of criminal prosecution of their employer if the employer complies with the code, but they retain their right to civil remedies, including back pay, interest, and potentially pecuniary penalties. The Fair Work Ombudsman is directly affected: its discretion to refer matters for criminal prosecution is restricted once it forms a satisfaction that the employer complied with the code. The Ombudsman must also refrain from entering into a cooperation agreement covering the conduct if satisfied. The Director of Public Prosecutions and the Australian Federal Police are affected in that they will not receive referrals from the Ombudsman in such cases, though they could still receive complaints directly from employees or third parties. Industrial associations, lawyers, payroll service providers and consultants are affected because they become “reliable sources” under section 9, and employers relying on their advice may benefit from the safe harbour. These professionals may face increased demand for advice and documentation as employers seek to prove compliance. The Fair Work Commission is also referenced as a reliable source, though its role is primarily quasi-judicial and it provides guidance materials. The code does not affect state or territory authorities, since the criminal offence under section 327A is a federal offence.

The instrument imposes no new duties on employers; rather, it provides a conditional right to avoid criminal referral. The employer’s primary duty remains to pay applicable amounts correctly and on time under the Fair Work Act and relevant instruments. The code adds a procedural route to demonstrate that a failure was not intentional. The employer has the right to have its conduct assessed against the code factors when the Ombudsman considers whether to refer for criminal prosecution. If the employer complies with the code, it gains the right to have the Ombudsman refuse referral. However, the employer does not have a right to compel the Ombudsman to be satisfied; satisfaction is a discretionary finding. The Ombudsman has the duty, if satisfied, not to refer and not to enter into a cooperation agreement covering that conduct. The Ombudsman’s duty is triggered only upon satisfaction; there is no duty to investigate the code’s application proactively. The code does not create a right for employees to be notified of the employer’s compliance or to challenge the Ombudsman’s satisfaction. Employees retain their existing rights under the Act to bring civil claims, seek penalties, or request the Ombudsman to issue compliance notices or enforceable undertakings. The employer also has the right to rely on the code’s non-exhaustive list of factors as guidance for structuring its payroll compliance efforts, but there is no guarantee of safe harbour even if all listed factors are satisfied, because the Ombudsman may consider other circumstances that point to intentionality. The instrument does not create a right to judicial review of the Ombudsman’s satisfaction, but the general principles of administrative law apply: an employer could seek review of a decision on grounds such as unreasonableness or jurisdictional error. The code does not affect the employer’s duty to report underpayment to the ATO for superannuation guarantee purposes or to rectify underpayment under other legislation.

The declaration itself does not impose penalties; it alters the enforcement landscape by removing criminal referral for employers that comply with the code. The underlying criminal offence is section 327A of the Fair Work Act, which carries maximum penalties of up to five years imprisonment for individuals or fines up to 600 penalty units for bodies corporate (currently over $180,000 for an individual, higher for corporations). Civil penalties for underpayment remain unchanged: maximum 60 penalty units per contravention for individuals and 300 penalty units for bodies corporate, plus back-pay orders and interest. The code does not prevent the Ombudsman from issuing a compliance notice under Subdivision DD of Division 3 of Part 5-2 of the Act, or from accepting an enforceable undertaking. The simplified outline in section 5 expressly states that civil action may still be taken if the employer has complied with the code. The enforcement mechanism is therefore bifurcated: criminal referral is blocked, civil remedies continue. The Ombudsman also cannot enter into a cooperation agreement covering the conduct if it is satisfied the employer complied with the code. Cooperation agreements are voluntary undertakings under Subdivision DE of Division 3 of Part 5-2 where an employer self-reports conduct and agrees to rectify and improve compliance; the code effectively closes that door for code-compliant employers in respect of criminal referral, though the Ombudsman might still accept a cooperation agreement for civil purposes. The practical effect is that employers who comply with the code may have less incentive to self-report under a cooperation agreement, since they already have criminal immunity. But self-reporting might still be useful to resolve civil liability and avoid litigation. The instrument does not create any new investigatory powers for the Ombudsman; it merely constrains referral. The Ombudsman must still form a view on satisfaction, which may require evidence from the employer. There is no penalty for failing to provide evidence of compliance, but without it the Ombudsman is unlikely to be satisfied, and referral may proceed.

The declaration is made under the Fair Work Act 2009 and directly interacts with section 327A (criminal underpayment) and section 327B (power to declare a code). It also interacts with Subdivision DD (enforceable undertakings and compliance notices) and Subdivision DE (cooperation agreements) of Part 5-2. The code does not affect the operation of the Criminal Code Act 1995 (Cth) generally, except that the Ombudsman’s referral is a prerequisite for prosecution under section 327A; other criminal laws such as fraud or theft may still apply if the underpayment involves deception. The code interacts with the Fair Work Commission’s role in varying awards and enterprise agreements, which employers must stay up to date with under section 8. It does not interact with state workers compensation, payroll tax, or long service leave laws, as those are separate obligations. The instrument notes that other instruments relevant to pay rates include “transitional instruments” under Schedule 3 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, preserving continuity for legacy agreements. The code does not affect the Superannuation Guarantee (Administration) Act 1992; underpayment of superannuation is a separate regime enforced by the ATO, not subject to this code. The code also does not affect the Corporations Act 2001; directors’ duties and insolvent trading laws remain applicable if underpayment leads to corporate failure. The interaction with state industrial relations systems is limited because small businesses in the federal system are covered by the Act; but if an employer is a state system employer (e.g., some unincorporated businesses in Victoria? Actually Victoria has referred powers), the code would not apply. The instrument does not create a defence to any civil claim; it only blocks criminal referral. Therefore, employees can still bring breach of contract claims under common law or state fair trading acts. The code’s interaction with the Privacy Act 1988 is indirect: employers disclosing employee information to seek advice must comply with privacy obligations.

This declaration is the original instrument. It was made on 6 December 2024 and commenced on 1 January 2025. There are no amendments to date. The instrument is made under subsection 327B(1) of the Fair Work Act, which allows the Minister to, by legislative instrument, declare a voluntary small business wage compliance code. The Minister can revoke or replace the code at any time by making a new declaration. Any amendment would need to be a new legislative instrument, tabled in Parliament and subject to disallowance under the Legislation Act 2003. The code may be reviewed over time, particularly if the Ombudsman’s application of the satisfaction test leads to disputes or if the criminal underpayment provisions are amended. The simplified outline in section 5 is not part of the instrument, but changes to it would also require a formal amendment. As at the commencement date, no transitional provisions or grandfathering arrangements exist because the instrument takes effect prospectively. Future amendments could expand or contract the list of reliable sources, add new factors, or clarify the burden of proof on the employer. The instrument’s authority derives from the Act, so any amendment to section 327B itself would also affect the code’s legal basis.

As at the commencement date, there is no litigation concerning this specific declaration. The instrument came into force only on 1 January 2025, and no proceedings have yet been commenced. Future litigation may arise in several forms. An employer could seek judicial review of a decision by the Fair Work Ombudsman not to be satisfied that the employer complied with the code, on grounds such as failure to take into account relevant considerations (the listed factors), taking into account irrelevant considerations, or unreasonableness. The code’s non-exhaustive language may make it difficult to argue that the Ombudsman failed to consider a mandatory relevant matter. Conversely, an employer could challenge a decision to be satisfied, perhaps by an employee or union seeking to compel criminal prosecution. However, the code does not give any person a right to require the Ombudsman to refer conduct, so standing may be an issue. Another potential area of litigation is the meaning of “intentional” in the context of corporate conduct. Corporate criminal law often requires identification of the directing mind; the code’s factors may be used to argue that mistakes by payroll staff, without senior management knowledge, are not intentional. Courts may need to clarify the relationship between the code and the general law of intention. There is no existing case law on section 327A or the code, as both are new. The instrument also notes that the Ombudsman must not refer conduct to the DPP or AFP if satisfied; if the Ombudsman nevertheless refers, an employer could seek an injunction or stay of prosecution. The code may also be considered in sentencing proceedings if an employer is convicted of criminal underpayment: compliance with the code could be a mitigating factor, though the code is not a defence. As no cases exist, the litigation history is currently nil.

Several features of the code may catch employers off-guard. First, the code is voluntary only in the sense that an employer can choose to follow it; but failing to follow it, or failing to satisfy the Ombudsman that you followed it, leaves the criminal referral door open. The term “voluntary” in the title does not mean the Ombudsman will disregard the code for those who ignore it. Second, the code is not a checklist. The factors in sections 6(3) and 6(4) are non-exhaustive, and the Ombudsman must be satisfied that the failure was not intentional having regard to relevant matters. Even if an employer checks every box - reasonable efforts, reliable advice, prompt rectification - the Ombudsman could still find that other circumstances indicate intentionality. Conversely, an employer who does some things listed may still be found compliant if the overall picture shows no intent. This creates uncertainty. Third, reliance on advice from a “reliable source” does not guarantee protection. Section 9 lists industrial associations, lawyers, payroll services, and the Ombudsman. But if the source gives incorrect advice, and the employer nevertheless follows it, the employer may still be found intentional if the source’s advice was obviously wrong or if the employer failed to provide accurate information to the source (paragraph 6(3)(e) requires the employer provided information reasonably believed to be accurate). So if an employer misstates an employee’s classification to a payroll service, the resulting underpayment might still be intentional. Fourth, rectification must be prompt. Section 10(b) asks how promptly steps were taken after becoming aware. Delays, even for legitimate reasons, could undermine the claim of non-intentionality. Fifth, the code does not protect against civil penalties or back-pay orders. An employer who complies with the code may still receive a compliance notice, face a civil penalty application, and have to pay the underpayment plus interest and possibly litigation costs. The shield is only from criminal referral, not from financial consequences. Sixth, the code applies only to failures to pay an applicable amount as defined; it does not apply to other contraventions like record-keeping failures, sham contracting, or adverse action. Seventh, the code’s safe harbour does not prevent the Ombudsman from referring conduct to other agencies for different criminal offences, such as fraud under the Criminal Code. Eighth, the size threshold for small business is strictly headcount; if an employer grows to 15 or more employees at the relevant time, the code does not apply. Seasonal or casual staff counts matter. Ninth, the code uses the term “must not be intentional” but the factors refer to “reasonable efforts”. An employer who makes no effort at all but genuinely did not intend to underpay (e.g., mere oversight) may still be found to have an intentional failure if the Ombudsman imputes intention from the lack of effort. The line between negligence and intention is blurry in this context.

Compliance with the code is not mandatory, but to gain the benefit of the criminal referral shield an employer should structure its payroll practices and documentation to align with the code’s indicative factors. The following steps, derived from the instrument, are practical measures. First, ascertain correct pay rates and entitlements (section 7). Identify the applicable modern award, enterprise agreement, or other instrument. If there is no award, use the national minimum wage and the relevant classification under any applicable instrument. Consider the nature of the enterprise, the employee’s role and duties, and the correct classification (e.g., level 1, 2, or 3 in a retail award). Document the consideration of minimum rates, loadings, allowances, penalty rates, overtime, annualised wages, piece rates, and any other separately identifiable amounts. Second, stay up to date (section 8). Monitor changes to legislation (e.g., changes to the National Employment Standards), award variations by the Fair Work Commission, and changes to the employee’s circumstances such as promotion, change of duties, or age (for junior rates). Subscribe to Ombudsman alerts, check the Ombudsman’s pay tool periodically, and review award updates. Third, rely on accurate information about the employee (section 6(3)(c)). Ensure you have correct records of the employee’s role, duties, classification, qualifications, age, hours worked, and location. If relying on information from the employee, verify it where possible. Fourth, seek advice from reliable sources (section 9). Consider obtaining written advice from an industrial lawyer, an employer association, a properly configured payroll service, or the Fair Work Ombudsman’s resources. Keep records of the advice, including the instructions you gave to the adviser. Ensure you provide accurate information to the adviser. Fifth, rectify promptly if an underpayment is discovered (section 10). Calculate the shortfall and pay it as soon as possible, with interest if required. Document the date of discovery and the steps taken. Sixth, cooperate with any Ombudsman inquiry (section 6(3)(g)). Respond to requests for information, allow access to records, and participate in any investigation. Seventh, consider proactive audits (section 11(c)). Conducting a payroll audit without having been prompted by a complaint or Ombudsman action strengthens the case that any failure found was not intentional. If an audit uncovers errors, rectify them and report to the Ombudsman if appropriate. Eighth, . Keep a file with the steps taken, the sources consulted, the advice received, the payroll records, and the rectification actions. While the code is not a checklist, comprehensive documentation is the best evidence to satisfy the Ombudsman. Ninth, responsible for payroll on the code’s principles and on the importance of notifying management of any doubts. A system that ensures errors are caught and corrected internally will reduce the risk of an intentional finding. Finally, if an underpayment occurs, respond immediately: the code favours employers who act promptly to rectify and to prevent recurrence.