Who it applies to
A small business employer is an employer with fewer than 15 employees at a particular time. Three details in that definition do real work:
- Associated entities count. Employees of associated entities of the employer are included in the headcount, so a group structure does not get you under the threshold by splitting staff across entities.
- Casuals usually do not count. Casual employees are excluded unless they are engaged on a regular and systematic basis, in which case they are included.
- It is measured at a particular time. A business near the threshold can move in and out of small business status, and what matters is the headcount at the time of the conduct, not an average or a count taken today.
If you sit anywhere near 15, this is worth working out properly and recording, before you ever need to rely on it.
The factors the Ombudsman weighs
The Code asks whether the underpayment was intentional, and answers that by looking at the whole picture. These are the factors set out in the Code.
| Factor | What it looks like in practice |
|---|---|
| Took reasonable steps to work out correct pay rates and entitlements | Checking the relevant award or enterprise agreement, or confirming the National Minimum Wage Order applies |
| Made reasonable effort to stay up to date with changes to obligations | Subscribing to Fair Work email updates so award changes and rate increases are not missed |
| Checked and relied on employee information reasonably believed to be accurate | Confirming an employee is classified correctly for their role and duties, or paid correctly for their age |
| Sought information or advice from a reliable source | Advice from an employer association, a lawyer, the Fair Work Ombudsman or the Fair Work Commission |
| Gave accurate information when seeking that advice | Providing the correct classification and age when asking the question, so the answer is usable |
| Took steps to fix the underpayment | Repaying as soon as possible and preventing the same issue recurring |
| Cooperated with any inquiry or investigation | Responding to calls and emails and engaging throughout |
| Other relevant factors | What led to the underpayment, or how it came to light, such as a payroll error found in a quarterly audit |
Read that list again and notice what it rewards. Almost every factor is about process: did you check, did you keep checking, did you ask someone credible, did you act when you found out. None of it requires you to have been right.
The uncomfortable implication
The factors are evidentiary. Each one is something you either can or cannot demonstrate after the fact.
"We checked the award" is a claim. A dated record showing which award you checked, which classification you assigned, what you concluded and when you last reviewed it, is evidence. When the Ombudsman is deciding whether it is satisfied the Code was complied with, those are not the same thing.
The businesses most exposed here are not the ones doing something wrong on purpose. They are the ones doing everything informally, in someone's head, with nothing written down.
What the Code does not do
| Protects against | Does not protect against |
|---|---|
| Referral for criminal prosecution | Compliance notices |
| Enforceable undertakings | |
| Civil litigation and civil penalties | |
| The obligation to repay the employee |
One more consequence that is easy to miss: if the Ombudsman is satisfied a small business employer complied with the Code, it cannot also enter a cooperation agreement with that employer about the same conduct. That is not a penalty, it is simply that the Code protection already covers the ground a cooperation agreement would.
How you find out
The Fair Work Ombudsman gives the employer written notice of its decision on whether the Code has been satisfied, either way. The Code also does not affect any of the Ombudsman's other powers or functions, or the powers of its inspectors.
The Ombudsman publishes a Guide to paying employees correctly and the Voluntary Small Business Wage Compliance Code, with a checklist, case studies and best practice tips. If you are a small employer, it is the single most useful free document on this topic and it is worth reading in full.
Common questions
Who counts as a small business employer for the Code?
An employer with fewer than 15 employees at a particular time. Employees of associated entities of the employer are included in the count. Casual employees are not counted unless they are engaged on a regular and systematic basis. Because the test applies at a particular time, a business sitting near the threshold can move in and out of small business status, so the headcount at the time of the conduct is what matters rather than an average or a headcount taken today.
Does complying with the Code mean no penalty at all?
No. The Code only blocks a referral for criminal prosecution. Civil actions remain available, including a compliance notice, an enforceable undertaking and litigation, and civil penalties may still apply. The obligation to repay the employee is unaffected. There is also a practical consequence worth knowing: if the Fair Work Ombudsman is satisfied a small business employer complied with the Code, it cannot then enter into a cooperation agreement with that employer about the same conduct, because the Code protection already applies.
Do you have to meet every factor in the Code?
No. The Fair Work Ombudsman states that the Code is not a checklist, that an employer does not need to show they meet all the factors, and that there is no single factor that must be met. Where an underpayment has occurred the Ombudsman looks at the overall picture and the particular circumstances of the business to decide whether the Code has been satisfied. The employer is then given written notice of the decision either way.
Most of the Code is evidence you either have or you do not
Reasonable steps to work out correct rates, staying current with changes, checking classifications, acting on what you find. FairCheck does those checks against the award that actually applies and leaves a dated record of each one. In beta now, with early access opening to the waitlist first.
Join the waitlist The criminal offence explainedFairCheck provides general information about Australian pay rules and does not provide legal advice, and nothing here guarantees that the Fair Work Ombudsman will be satisfied the Code has been complied with in any particular case. Download the Code and the Ombudsman's Guide, and obtain legal advice on any specific exposure. Official information is available at fairwork.gov.au.