Changes to penalty rates and minimum wage rates in modern awards

Articles Written by Lucienne Mummé (Partner), Jack Bourke

Key takeaways

Two recent decisions of the Fair Work Commission (FWC) mean that employers, particularly in the retail and hospitality industries, should confirm their minimum rate obligations to employees. These decisions:

  • set out the timeline for the implementation of the reduction in Sunday and public holiday penalty rates in various retail and hospitality awards; and
  • increase the minimum wage rate, including rates payable under all modern awards, by 3.3% with effect from 1 July 2017.

Penalty Rates – Transitional Arrangements [2017] FWCFB 3001

On 5 June 2017, a Full Bench of the FWC determined the timeline for the reduction in Sunday and public holiday penalty rates under the General Retail Industry Award 2010 (Retail Award), Pharmacy Industry Award 2010 (Pharmacy Award), Fast Food Industry Award 2010 (Fast Food Award) and the Hospitality Industry (General) Award 2010 (Hospitality Award).

The timeline for the introduction of the changes to Sunday rates under these modern awards is as follows:

Retail Award Applicable rate of pay on Sunday
Full-time & part-time employees 1 July 2017: 200% to 195%
1 July 2018: 195% to 180%
1 July 2019: 180% to 165%
1 July 2020: 165% to 150%
Casual employees 1 July 2017: 200% to 195%
1 July 2018: 195% to 185%
1 July 2019: 185% to 175%
Pharmacy Award (7.00am – 9.00pm only) Applicable rate of pay on Sunday
Full-time & part-time employees 1 July 2017: 200% to 195%
1 July 2018: 195% to 180%
1 July 2019: 180% to 165%
1 July 2020: 165% to 150%
Casual employees 1 July 2017: 225% to 220%
1 July 2018: 220% to 205%
1 July 2019: 205% to 190%
1 July 2020: 190% to 175%
Fast Food Award (Level 1 employees only) Applicable rate of pay on Sunday

Full-time & part-time employees

1 July 2017: 150% to 145%
1 July 2018: 145% to 135%
1 July 2019: 135% to 125%
Casual employees 1 July 2017: 175% to 170%
1 July 2018: 170% to 160%
1 July 2019: 160% to 150%
Hospitality Award Applicable rate of pay on Sunday

Full-time & part-time employees

1 July 2017: 175% to 170%
1 July 2018: 170% to 160%
1 July 2019: 160% to 150%
Casual employees No change

 

In February, a Full Bench determined to reduce the public holiday penalty rates in the above awards and the Restaurant Industry Award 2010 for full-time and part-time employees, so that such employees’ public holiday rates will reduce from 250% to 225%.  The public holiday rate for casuals was reduced to 250%.  In its decision of 5 June 2017, the Full Bench decided that the changes to public holiday penalty rates should not be subject to any transitional arrangements which means those reductions will take effect on 1 July 2017.

Retail clients should note that, in its February decision, the Full Bench considered that casuals covered by the Retail Award were entitled to 275% of the applicable hourly rate for work performed on public holidays, on the basis that it considered the 25% casual loading should be paid in addition to the existing public holiday penalty. This means that the rate for casual employees on public holidays reduces from 275% to 250% on 1 July 2017.

In reaching its decision regarding the timeframe for reducing penalty rates, the Full Bench rejected submissions by employer groups that the reduction should be phased in over two years and the submissions of unions that the implementation of the reduction should be delayed for between two to four years. The Full Bench also rejected the SDA’s submission that current penalty rates should be maintained for existing employees and reduced only for future employees, on the grounds this would create the potential for disharmony and conflict between employees, and increase the regulatory burden on business.

United Voice and the SDA are reported to be appealing the FWC’s February decision to reduce penalty rates to the Federal Court. The Opposition has also proposed legislation which seeks to retrospectively amend the Fair Work Act 2009 (Cth) (FW Act) to prevent the FWC from varying a modern award to reduce the take-home pay of any current or prospective award-covered employee

Annual Wage Review 2016-17 [2017] FWCFB 3501

On 6 June 2017, a Full Bench of the FWC determined to increase minimum wage rates by 3.3% with effect from 1 July 2017. 

Implications for employers

For employers in the retail and hospitality industries, the impact of the two Full Bench decisions will depend on the industrial arrangements that are in place and how employees are remunerated.

The decisions will have the most immediate impact in respect of employees who are paid under the relevant modern awards set out above. For those employees, the penalty rates for working on Sundays and/or public holidays will reduce, and their hourly base rate of pay will increase from 1 July 2017.

In implementing any reduced rates, employers should be mindful of the terms of an employee’s employment contract. If an employee’s contract states that an employee will be paid a particular rate for work performed on a Sunday or public holiday, reducing the rate paid to the employee may breach the employee’s contract.

For employees who are covered by an enterprise agreement, there will be no immediate impact unless the enterprise agreement:

  • provides employees with lower base rates of pay than the underlying award. Pursuant to s.206(1) of the FW Act, the base rates of pay under an enterprise agreement must not be less than the base rates of pay under the relevant underlying modern award. In such circumstances, employers are required to pay employees the base rates of pay provided in the relevant underlying award.
  • states that the base rates of pay, or the Sunday and/or public holiday penalty rates, are to be paid according to the relevant award; or
  • incorporates the relevant award, and is silent as to the issue of base rates of pay, or Sunday and/or public holiday penalty rates.

Clients who are unsure of the effect of the decision on their arrangements should seek specific advice.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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