Is Your Business Compliant?
FAIR WORK ACT – EFFECTIVE 1 JANUARY 2025
The Rule Has Changed. The Risk Is Real.
On 1 January 2025, intentional underpayment of wages became a criminal offence under the Fair Work Act 2009 (Cth). This is not an administrative update. For SME founders who have been running payroll on instinct, outdated spreadsheets, or a vague awareness of what the relevant Modern Award says, the exposure is now significant.
The penalties under the new provisions are severe. For companies, the maximum fine is the greater of $8.25 million or three times the underpayment amount. For individuals – including directors and owners – penalties extend to up to 10 years imprisonment and fines of the greater of $1.565 million or three times the underpayment amount. Even unintentional breaches attract substantial civil penalties. Small businesses with fewer than 15 employees can be fined up to $99,000 per breach for unintentional underpayment.
“What was once considered an administrative error could now lead to significant penalties and reputational damage.” – HR Leader, January 2025
Why SMEs Are Most Exposed
Most large businesses have payroll teams, external auditors, and industrial relations specialists whose job it is to stay across Modern Award classifications, penalty rates, allowances, and superannuation calculations. SME founders typically do not.
The most common failure points for SMEs are:
- Incorrect classification of employees under Modern Awards, resulting in underpayment of base rates or allowances
- Annualised salary arrangements that are never reconciled against actual hours worked
- Superannuation underpayment – particularly now that the Superannuation Guarantee rate increased to 12% from 1 July 2025
- Paying casual loading in lieu of entitlements for employees who legally qualify as permanent under the new Section 15A definition of casual employment (effective 26 August 2024)
- Failure to maintain records adequate to demonstrate compliance – currently required to be kept for 7 years
The Voluntary Small Business Wage Compliance Code
The Federal Government has provided one pathway for small businesses to reduce criminal prosecution risk: the Voluntary Small Business Wage Compliance Code Declaration 2024, which came into force in December 2024. Businesses with fewer than 15 employees that can demonstrate genuine efforts to comply, self-identify errors, and repay underpayments promptly are less likely to face criminal prosecution for inadvertent breaches.
Critically, the Code does not provide immunity. It provides a framework for demonstrating good faith. A business with no documented payroll review process, no award mapping, and no reconciliation system will have difficulty demonstrating that any underpayment was unintentional rather than deliberate.
If your payroll system cannot produce a clear audit trail showing how each employee’s pay was calculated against their Award classification, you do not have adequate compliance infrastructure.
What a Compliant Payroll System Looks Like
This is a systems problem before it is a legal problem. A functional payroll compliance system for an SME includes:
- Award mapping – every role documented against the correct Modern Award classification and level
- Regular reconciliation – for annualised salary employees, a minimum annual comparison of actual hours against the salary paid
- Casual workforce audit – verification that employees classified as casual actually meet the new Section 15A definition
- Superannuation tracking – confirmation that contributions are calculated on the correct gross, at the correct rate, and paid on time
- Record-keeping that can survive an audit – 7 years of accessible, complete wage records
Three Questions Your Business Must Answer
If you cannot answer these three questions with documentation rather than a best guess, you have a compliance gap:
- Is every employee correctly classified under the applicable Modern Award, and are you paying at least the minimum rate for their classification?
- If you pay annualised salaries, when did you last reconcile actual hours against what the Award would have required?
- Are your casual employees genuinely casual under the new legal definition, or have they become de facto permanent employees who are owed entitlements you have not been paying?
The legislation does not care how long you have been running the business or whether you meant to underpay. It cares whether you have systems that prevent it.
SOURCES
Fair Work Act 2009 (Cth), as amended by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024.
Fair Work Ombudsman: fairwork.gov.au
Voluntary Small Business Wage Compliance Code Declaration 2024.
HR Leader: “Are businesses ready for wage theft criminalisation?” January 2025.
Allens Insights: “Recent Developments in Employment Law,” January 2025.