Running a small business in Australia means juggling a million things—cash flow, customer satisfaction, and making sure your team gets paid on time. But what happens when an honest payroll mistake slips through the cracks?
Starting January 1, 2025, knowingly underpaying employees becomes a criminal offence, with penalties of up to 10 years in prison or fines as high as $8.25 million for companies. It’s a scary thought for any small business with fewer than 15 employees. But here’s the good news: the Voluntary Small Business Wage Compliance Code offers a safety net. If an SME makes an unintentional underpayment and takes quick action to fix it, the Code protects them from criminal penalties. It’s designed to reward honesty, not punish genuine mistakes.
The panic of an honest mistake
Meet Sarah. She runs a small café in regional New South Wales, employing four baristas and cooks. She’s been in business for three years and set up payroll using Fair Work Ombudsman (FWO) advice when she started. One day, Tom, her weekend barista, casually asks why his penalty rates seem lower than a friend’s at another café. At first, Sarah brushes it off—she’s confident she got everything right. But later that night, curiosity gets the better of her, and she double-checks. To her horror, she realizes the weekend penalty rates changed last July, and she completely missed it.
She’s been underpaying her staff—not by much, but enough to make her stomach drop. Visions of fines and legal trouble race through her mind. “I thought I’d done everything right,” she says. “How did I mess this up?” Sarah’s story is far from unique. Many small business owners face similar wake-up calls. The difference now? As of 2025, intentional underpayment is a criminal offence. But thanks to the Code, Sarah has a way to fix things before it gets that far.
The Code: A safety net, not a trap
The Voluntary Small Business Wage Compliance Code is designed for SMEs like Sarah’s—businesses that never meant to underpay staff. Unlike cases where employers deliberately shortchange workers to save money, unintentional underpayments don’t automatically lead to criminal charges if the business follows the Code’s guidelines.
The FWO considers:
- Did the employer try to get it right? Using Fair Work tools or seeking advice shows good intent.
- Did they fix it fast? Quickly back-paying staff and updating payroll systems are key.
- Did they put safeguards in place? Signing up for award updates helps prevent future mistakes.
For Sarah, this guide became her action plan. She used the FWO’s Pay Calculator, confirmed the correct rates, and back-paid her staff within a week. She also subscribed to FWO alerts to stay on top of changes. When she reported the error, her proactive response meant her café qualified for Code protection—no criminal charges, just a chance to make things right.
Real-world relief: Wayne’s story
Sarah’s experience mirrors Wayne’s, another case highlighted in the government’s guide. Wayne, a small business owner with four employees, was shocked to learn he’d been paying outdated weekend penalty rates. Like Sarah, he’d relied on initial FWO advice but missed an update. Instead of panicking, Wayne acted fast. He reviewed his payroll, consulted his employer association, and hired an external payroll service to audit his system. His team was back-paid in the next pay cycle, and he explained the mix-up. The result? He avoided legal trouble and even strengthened trust with his employees.
If the FWO had investigated, his quick and transparent response would have earned him Code protection—proof that good faith matters. The Code isn’t a free pass. Compare Sarah and Wayne to Jason, a Victorian sole trader also featured in the guide. Jason knowingly paid his teenage employee, Daniel, a flat $10 per hour—far below the award rate—to cut costs. When Daniel reported it, Jason faced criminal prosecution. For intentional underpayments, the penalties are steep:
- Individuals: Fines up to $1.65 million (or three times the underpayment) and up to 10 years in prison.
- Companies: Fines up to $8.25 million (or three times the underpayment).
A game-changer for SMEs
The Code gives SMEs breathing room to fix payroll mistakes before they turn into major legal problems. Unlike big corporations with HR and legal teams, small business owners often handle payroll themselves while juggling countless other tasks. A missed award update or a payroll miscalculation isn’t always about greed—it’s often about being overwhelmed.
That’s why the government’s five-step checklist is so valuable:
- Check pay rates regularly.
- Keep proper records.
- Stay updated on award changes.
- Seek help from the FWO or employer associations.
- Fix errors fast if they happen.
For Sarah, the Code meant relief. “It was a wake-up call, but I’m glad there’s a way to fix it without losing everything,” she says. Wayne agrees: “Mistakes happen. It’s what you do next that matters.”
The Code isn’t about being perfect—it’s about taking responsibility. No one expects small businesses to get everything right all the time, but they do expect honesty and action. If you miss an update or make a payroll mistake, don’t panic. Use the FWO’s free tools (fairwork.gov.au/tools-and-resources), follow the guide, and fix the issue quickly. The Code gives you a second chance—a safety net to catch honest mistakes, not a trap to punish you for trying.
This article is based on information from “A Guide to Paying Employees Correctly and the Voluntary Small Business Wage Compliance Code,” published by the Australian Government and the Fair Work Ombudsman, last updated December 16, 2024. Examples such as Wayne’s story are drawn directly from the guide, while Sarah’s story is a fictional scenario inspired by its principles. For full details, refer to the original document at fairwork.gov.au/vsbwcc.
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