Since January 1, 2025, intentionally underpaying employees has been considered a criminal offence, although honest mistakes are not included in this provision.
However, if a small business employer adheres to the Voluntary Small Business Wage Compliance Code, their actions won’t be referred for criminal prosecution, provided the underpayment was not intentional. Civil actions, however, may still be pursued.
Key points to consider include: 
1. Intentional Underpayment: Employers must ensure that underpayment is not intentional. This includes:
- Paying employees less than their minimum entitlements on purpose.
- Failing to pay employees intentionally.
2. Compliance with the Code: A small business employer will be deemed compliant if:
- They do not intend to underpay employees.
- They make reasonable efforts to pay employees correctly (e.g., checking pay rates, staying updated on laws, and seeking advice when necessary).
3. Factors for Compliance: The Code outlines several factors that indicate compliance, including:
- Taking reasonable steps to determine correct pay.
- Effort to stay informed about workplace law changes.
- Relying on accurate employee information when calculating wages.
- Seeking reliable advice regarding pay entitlements.
- Promptly addressing underpayments once identified.
- Cooperating with investigations if necessary.
4. What Happens if the Code is Satisfied:
- If the employer complies with the Code, they will not be referred for criminal prosecution.
- Civil actions (such as compliance notices or enforceable undertakings) may still be pursued.
5. Tools and Resources:
- Employers can refer to the Guide to Paying Employees Correctly and the Voluntary Small Business Wage Compliance Code for practical advice, including case studies, checklists, and best practices.
Small businesses can avoid criminal liability for underpayment if they follow the Code, ensuring they make reasonable efforts to pay employees correctly and take quick action when issues arise.
However, civil penalties could still apply even when the Code is satisfied, meaning it’s important to review your payroll practices, and check to see that your rates of pay capture the award entitlements.
Additionally, employment contracts should be checked to ensure legislative compliance. CCIWA’s legal practice Business Law WA is offering a complimentary Red Flag Review of documents including employment contracts (the terms of which can be accessed here).
If you have any questions about underpayments, including where you have discovered an underpayment, please contact our team at [email protected] or (08) 9365 7746.
