Businesses can now face criminal proceedings for underpaying staff. Here's how it works

The Fair Work Ombudsman (FWO) says only intentional underpayment of staff will be prosecuted after its new small business wage compliance code and criminal underpayment offence came into effect on January 1.

The Voluntary Small Business Wage Compliance Code obliges businesses with under 15 employees to take proactive steps to pay their employees correctly.

Under the changes, individuals from businesses of any size who are found guilty of intentionally underpaying their employees can face a maximum of 10 years in prison.

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"Genuine mistakes will not be prosecuted under the new criminal underpayment laws that commenced on 1 January," Fair Work Ombudsman Anna Booth said.

"[Small businesses] should rest assured – the offence applies only to intentional underpayments, and compliance with the Voluntary Code means we can't refer a small business for possible prosecution."

Both the Voluntary Small Business Wage Compliance Code and a guide to how to pay employees correctly are available on the FWO's website.

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Actions small business employers can take

The code outlines a non-exhaustive list of actions an employer can take to ensure they're in compliance.

These include:

• Making reasonable efforts to ascertain the right rates of pay and entitlements for their employee, and reasonable efforts to stay up to date with their obligations related to paying their employee.
• Considering and relying upon information that the employer reasonably believed to be accurate (such as the employee's role, duties, classification, relevant qualifications, age, hours and location of work).
• Seeking information or advice from reliable sources in relation to paying applicable amounts to the employee.

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New penalties under the criminal underpayment offence

The new criminal underpayment offence enables significant penalties for employers found guilty of intentionally underpaying their staff.

For the business, maximum penalties are the greater of three times the amount of the underpayment (if the court can determine the underpayment) and $8.25 million.

If the court can't determine the underpayment, then the penalty will be up to $8.25 million.

Individuals found guilty could face a maximum of 10 years in prison, and, if the court can determine the underpayment, can also be penalised up to the greater of three times the amount of the underpayment and $1.65 million. If the court can't determine the underpayment, individuals could be fined up to $1.65 million.

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The FWO also reminds small business employers that compliance with the code does not rule out civil remedies for breaching workplace laws.

An affected employee or relevant union can still bring civil litigation.

"Employers of any size remain exposed to civil penalties and reputational risks if they fail to meet workplace obligations," Booth said.

"Employers should make use of our range of free resources to ensure hard-working employees are receiving all their legal entitlements."