What You Need To Know About The New Wage Compliance Code
By Cheryl Murdock, Client Manager, Smith Shearer
As of January 1, 2025, Australia’s Voluntary Small Business Wage Compliance Code is in effect as part of the new wage theft laws. This Code is designed to help small businesses with fewer than 15 employees avoid criminal prosecution for unintentional wage underpayments while reinforcing fair pay practices.
For small business owners, wage compliance isn’t just about meeting payroll obligations. It’s about managing financial risk, meeting tax and superannuation requirements, and protecting your business from legal consequences.
The good news is that if you take reasonable steps to ensure employees are paid correctly and address any errors promptly, following the Code can protect you from prosecution. Here’s what you need to know.
Key Changes Under the Wage Compliance Code
1. Wage Underpayment is Now a Criminal Offence
From January 1, 2025, deliberately underpaying employees is a criminal offence in Australia. If found guilty of intentional wage theft, business owners could face:
- Significant fines for non-compliance
- Up to 10 years in jail if convicted of intentional underpayment
However, genuine mistakes will not lead to criminal prosecution if businesses take reasonable steps to pay employees correctly and rectify errors when they occur.
Check you’re paying employees correctly
To help businesses stay compliant, the Fair Work Ombudsman has created a Guide to Paying Employees Correctly, along with a Code Guide that includes:
✅ A checklist for payroll compliance.
✅ Examples of common mistakes and how to fix them.
✅ Best practice tips for ensuring fair pay.
Small businesses should refer to this guide regularly to ensure they are paying their employees correctly and meeting the Code’s requirements.
2. Compliance is Your Best Protection
By following the Voluntary Small Business Wage Compliance Code, you can protect your business from serious penalties. Compliance helps you:
- Avoid legal trouble by demonstrating that you are making an effort to follow wage laws
- Strengthen financial reporting by ensuring accurate payroll records align with tax and superannuation obligations
- Minimise business disruptions by preventing wage disputes, audits, and employee claims
3. Tax and Superannuation Obligations are Linked to Wage Compliance
Wage compliance is not just about paying the correct wages; it also affects:
- PAYG withholding, ensuring that the correct tax is withheld and reported to the ATO
- Superannuation Guarantee (SG) payments, making sure employee super is paid on time to avoid penalties
- Single Touch Payroll (STP) reporting, meeting ATO requirements for real-time payroll data submission
Failing to meet wage obligations can trigger audits by the ATO and Fair Work Ombudsman, leading to financial penalties and legal consequences.
How to Stay Compliant
1. Reviewing Payroll for Risks
Small businesses should conduct regular payroll compliance reviews to identify potential issues before they escalate. This includes checking:
- That wages and entitlements match employees’ financial records, and that PAYG withholding and superannuation obligations are being met
- That PAYG withholding and superannuation contributions are accurate and up to date
2. Maintaining Proper Documentation
Accurate record-keeping is essential for proving compliance. Employers should ensure they maintain:
- Payroll records that align with tax and workplace laws
- Clear documentation of any corrections made to underpayments
- Records of advice received from accountants or legal professionals regarding wage compliance
3. Seeking Professional Guidance
Staying up to date with wage laws can be complex, particularly with frequent changes to tax and superannuation obligations. Small businesses can benefit from professional guidance to:
- Understand their employer obligations in relation to tax and payroll compliance
- Implement payroll systems that integrate with accounting software and streamline compliance
- Ensure compliance with Fair Work and ATO requirements to avoid penalties
How We Can Help
At Smith Shearer, we focus on wage compliance from a financial and risk management perspective. Our role is to help you:
- Identify and reduce risks through payroll audits and compliance reviews
- Align payroll compliance with tax and superannuation obligations
- Provide strategic advice on structuring employee remuneration correctly
- Ensure accurate and timely reporting to the ATO and Fair Work Ombudsman
While we assist in reconciling wages, PAYG withholding, and superannuation obligations with your financial records, we do not assess whether employees are classified under the correct awards or whether your payroll system meets Fair Work requirements. If you need guidance on employment awards or payroll system compliance, we recommend consulting an HR specialist or payroll advisor.
However, if you need assistance ensuring that your payroll figures align with your financial reports, meeting superannuation deadlines, or understanding the tax implications of wage compliance, we are here to help.
Contact us today to discuss how we can support your wage compliance strategy within the scope of your financial and tax obligations.
