Protection of penalty and overtime rates

The federal government’s new law to protect penalty and overtime rates has now received Royal Assent.

𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗲 𝗹𝗲𝗴𝗶𝘀𝗹𝗮𝘁𝗶𝗼𝗻 𝗱𝗼?

The legislation puts constraints on the Fair Work Commission when it exercises its power to make, vary or revoke modern awards. The Commission must now ensure that:

• the rate of any penalty or overtime rate that employees are entitled is not reduced; and
• modern awards do not include terms that substitute employees’ entitlements to receive penalty or overtime rates where those terms would reduce the additional remuneration employees would otherwise receive for working times that attract those rates.

These provisions are a response to applications by employer groups to vary awards to enable penalty and overtime rates to be rolled into single rates of pay. There have been applications in the banking, retail and clerical sectors to enable this. For example, an employer would not be required to pay penalty or overtime rates if the employee is paid a salary that is at a certain level above the minimum rate.

Employers have argued that this allows greater productivity and flexibility, but the concern is that it could leave employees worse off if they work hours that would attract more pay if penalty and overtime rates were applied.

The practical effect of the legislation is that the Commission will probably not be able to include provisions in modern awards that enable entitlements to be rolled up into a single rate of pay. This is because it would be unlikely that it could do this without an employee potentially being worse off under some roster pattern.

𝗪𝗵𝗮𝘁 𝘁𝗵𝗲 𝗹𝗲𝗴𝗶𝘀𝗹𝗮𝘁𝗶𝗼𝗻 𝗱𝗼𝗲𝘀𝗻’𝘁 𝗱𝗼

The legislation is limited to placing restrictions on the Commission when it makes, varies or revoked modern awards. It doesn’t:

• affect existing annualised wage provisions in awards;
• change the law related to contractual offset clauses;
• affect enterprise agreements, meaning rolled up rates can still be used in enterprise agreements provided they meet the BOOT test; or
• change award terms that allow individual flexibility arrangements to be made, which allow for variation of penalty and overtime rates provided the required safeguards are met.

The legislation also doesn’t require the Commission to insert penalty or overtime rates into all modern awards. This remains discretionary.

Because the effect of the legislation is limited to the Commission’s award making process, there is nothing employers need to do other than continue to keep an eye on any changes to the awards that cover their employees.