Key takeaways
- The Bill would prohibit the Fair Work Commission from reducing penalty or overtime rates in modern awards. Employers making an application to make or vary an award would be prevented from combining penalty and overtime rates into a single pay rate if it results in employees being worse off.
- The proposed changes apply only to the Commission’s handling of applications to make, vary or revoke modern awards, including such applications submitted before the Bill’s commencement. This is likely to impact current applications on foot by employer groups in the retail and banking industries, and for clerical roles.
- The current law regarding making enterprise agreements that pass the better off overall test, the operation of flexibility terms in modern awards, and around entering into contracts that utilise an “offsetting” mechanism is unchanged.
In depth
Background
Modern awards, together with the National Employment Standards and national minimum wage orders, provide a safety net of enforceable minimum terms and conditions of employment for employees working in particular industries or occupations. They provide a “floor” of entitlements that underpin enterprise bargaining.
What’s changing
The new Bill, if passed in its current form, would introduce section 135A into the Fair Work Act 2009 (Cth) ("Fair Work Act"). This amendment is designed to safeguard overtime and penalty rates by requiring the Fair Work Commission, when making, varying or revoking modern awards, to ensure that:
- The rate of any penalty or overtime rate to which employees are entitled is not reduced.
- Modern awards do not include terms that substitute employees’ entitlements to penalty rates and overtime if those terms would reduce the additional remuneration that any employee would otherwise receive in relation to working “unsociable hours”.
Currently, employer groups in the retail and banking industries, and in relation to private sector clerks, have applications before the Commission seeking award variations to introduce rolled up rates. The Bill takes aim at these applications.
The Australian Retailer’s Association’s application, for example, seeks to introduce “salaries absorption for managerial and higher-level staff” (i.e. an ability to not pay penalty rates or overtime if the employee’s salary is a certain amount above minimum rates). If the Bill is passed, the Commission could not include this kind of provision in the underlying award if it would reduce an employee’s take home pay based on a particular roster pattern. Given the almost innumerable roster patterns that could be conceived on an industry wide (rather than enterprise by enterprise) basis, it is difficult to see how the Commission could be convinced that an all up rate in an award would never disadvantage an employee.
What's not changing
The Bill won’t affect:
- The test relevant to the approval of enterprise agreements – the "better off overall test", or "BOOT". The BOOT allows the Commission to approve an enterprise agreement if it leaves employees better off overall than they would be under the relevant award. This means there remains scope for negotiating “all up rates” by way of an enterprise agreement, provided appropriate guardrails are in place regarding potential roster arrangements, and the employer’s calculations demonstrate that employees will remain better off. Flexibility is possible – but it comes at a cost.
- The existing state of the law regarding annualised wages under awards, or contractual offsetting arrangements. Contractual offsetting arrangements seek to make clear than an employer and employee have agreed that the employee will be paid an all-up salary to compensate them for entitlements that would otherwise arise under the award. While common, these arrangements are not clearly sanctioned by the award system, so advice should be sought before relying on them.
- Award terms which allow individual flexibility arrangements between an employer and employee, provided they meet legislative safeguards and the genuine needs of the parties.
- The ability of the Commission to vary an award to correct an error or resolve ambiguity or uncertainty under section 160 of the Fair Work Act.
The Commission would also not be required to insert penalty or overtime rates into all modern awards. These remain discretionary inclusions under section 139(1)(d)-(e).
