September 2009

Awards under Fair Work: Modern Awards or modern headache?

On 2 September 2009 one of the final jigsaw pieces in the new Fair Work system was revealed by the Australian Industrial Relations Commission:  how employers and employees will transition to their new Modern Awards.

Modern Awards are the new industrial awards which will provide the minimum terms and conditions of employment for award dependent employees.  Moderns Awards are to commence operation on 1 January 2010 and will underpin all award based employment.

It is now time for every employer to confirm whether its business or its employees will be covered by a new Modern Award in lieu of an existing award.  All employers should determine whether the terms and conditions of employment in an existing award are more or less favourable to the business compared to the Modern Award.  Then it is time to pull out the maths tables and calculate how some of those obligations will be phased in or out over the next five years.

What Modern Award applies?

The AIRC has published 93 Modern Awards to date, with more to be made before 1 January 2010. 

These Modern Awards will govern an employer's minimum pay obligations and from 1 January 2010 and will underpin enterprise bargaining.  Every business needs to determine how its existing workforce will fit within the new classifications and rules.  It may be a case of best fit or forcing round pegs into square holes.

Ill prepared employers will be playing catch up in 2010 if preparations are not made now.

Transitional arrangements

The AIRC has had the unenviable task of reducing the existing 4,000 odd awards Australia wide into the 140 or so Modern Awards that will apply throughout Australia in defined industry and occupation.   In undertaking that task the AIRC acknowledged that:

.... the introduction of modern awards applying across the private sector in place of the variety of different provisions in the Federal and State awards inevitably means that some conditions will change in some States. Some wages and conditions will increase as a result of moving to the terms which apply elsewhere in the industry. Equally some existing award entitlements will not be reflected in the applicable modern award because they do not currently have general application.

Many businesses have been complaining about decreases or changes to the span of hours of work, and increases in allowances, penalties and loadings.  The intention of the award modernisation process was to ensure that no employee was worse off whilst at the same time that there was meant to be no increased cost to employers.  So how is that promise to be kept?

Phasing of wage obligations

Generally speaking, where an employer, in comparison to an existing award, is obliged to pay a higher wage under a Modern Award, then the obligation to pay that higher wage is to be phased in over 5 years from 1 July 2010.  The rate of phasing in is the gap between the existing wage and the new wage ("the transitional amount") at yearly percentages of 80%, 60%, 40% and 20% commencing 1 July 2010.

So, let us assume the Modern Award requires an employee to be paid $15 per hour but the existing award only requires $10 per hour.  There is a transitional amount of $5.  The increased hourly rate will be phased in as follows (subject, of course, to yearly wage reviews):

1 July 2010                   $11
1 July 2011                   $12
1 July 2012                   $13
1 July 2013                   $14
1 July 2014                   $15

The reverse occurs where an employer is, in comparison to an existing award, able to pay a lesser wage under the Modern Award, then the obligation is to be phased out over 5 years from 1 July 2010.  Employers cannot reduce any existing employee\'s wages or the worker can apply for "take home pay" orders to maintain their pay.

Phasing of loadings and penalties

A similar phasing in or out process is to occur with the loadings and allowances for:

  • casual or part-time loading;

  • Saturday, Sunday, public holiday, evening or other penalty;  and

  • shift allowance/penalty.

Where an employer did not have any such obligation, it will be phased in from 1 July 2010 at yearly increments of 20%, 40%, 60% and 80%.

No other terms and conditions in a Modern Award are to be phased in or out and therefore all those other terms will apply from day one, 1 January 2010.

Conclusion

So, its "steady as she goes" and not too much rocking as yet.  Employers will get a slight reprieve for any increased obligations but now is the time to prepare.  Kick off is 1 January 2010 and six months later start calculating the phasing in or out. 

And if it all seems too hard, then perhaps employers should give some serious consideration to negotiating an enterprise agreement with their workforce before 1 January 2010 to provide the simplicity and certainty of an arrangement designed to meet the needs of its business.

Author: James Mattson