Penalty rates SLASHED - or are they?

You may have already heard the news that the Fair Work Commission today handed down a decision regarding what penalty rates should apply to certain workers on certain days. Already the unions are galvanised into action to fight against the decision. Outrage is growing! Businesses will save thousands on wages at the expense of the workers! It’s the end of the world as we know it!

Well maybe not, and certainly not yet.

The Commission has not gone quite as far as is being reported in some sources and care needs to be taken when reacting to this news. The decision needs to be read carefully or businesses could find themselves in a great deal of trouble with their payroll.

The facts

  1. The Fair Work Commission has proposed changes to various penalty rates under certain Awards such as the Hospitality, Fast Food, Retail and Restaurants Awards. It is important to note that most of these proposals won’t come into effect for up to a year and the transition to the new rates will not be immediate.
  2. The changes vary under each Award and apply differently to permanent and casual staff and different classification levels.

For example, the proposed Sunday penalty rate for permanent employees under the Hospitality Award will reduce from 175% to 150% but there will be no changes to the casual Award rate. Under the Fast Food Award the reductions in rate both drop by 25% of the current rate on a Sunday but this only affects Level 1 employees.

  1. One of the reasons for the change, according to the Commission, is to encourage a shift from casual to part-time employment. This gives more protection and job stability to the employee because leave entitlements and the unfair dismissal provisions will apply.

The Awards

These proposals currently only apply to the Awards below:

  • Fast Food Industry Award 2010
  • General Retail Industry Award 2010
  • Hospitality Industry (General) Award 2010
  • Pharmacy Industry Award 2010
  • Restaurant Industry Award 2010

What is certain

  1. Some early/late night penalties will be varied under the Restaurant and Fast Food Awards. These changes are anticipated to take effect in late March 2017.
  2. Most of the Awards mentioned above will have reductions in the Public Holiday penalty rate. The percentage amount varied differs for each Award but the changes will take effect on 1 July 2017.

What is still to be decided

Sunday penalty rates will be reduced in some Awards but there are still  further submissions to be made about how the changes will be phased in.

The Full Bench favours a transition that occurs:

  1. over two instalments from the old rates to the new; and
  2. on 1 July annually, bringing it in line with the Annual Wage Review, so that any decrease is off set against any annual wage increase.

Although it does not favour them currently, the Commission will also look at whether “take home pay orders” might apply for existing employees to mitigate against the Sunday penalty rate change by preventing a reduction in their current rate of pay.

The unions and employer groups will make submissions between now and April, after which time the Commission will deliberate further with a decision likely to delivered in May 2017.

The Commission is still considering further rate changes in the Fast Food and Restaurant Awards.

What this means for you

  1. The effect on employer payrolls will be positive but may not be as great as the unions are suggesting.
  2. There will be plenty of time to prepare for and inform yourself of the changes.
  3. Review the Award that applies to you carefully to make sure that you understand what changes apply.
  4. Consider whether the engagement of casual staff remains the most cost effective option for your business.

A final word of warning

Before you rush to adjust your payroll, check the wording of your employment contracts.

These changes will only apply to those of your employees who are paid in accordance with Award rates.

If you have agreed on a specified monetary or percentage payment of an hourly rate in the contract or agreement, you are still bound to pay those amounts, even if the Award rate decreases. You cannot change those amounts without the employee’s consent.

This article was prepared by Elizabeth Olsson

Practice Area: Employment

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