The Fair Work Act 2009 (Cth) (FW Act) and other legislation imposes requirements on employers that they are sometimes unaware of. While they are sometimes minor matters, knowing about these obligations could save you time and money in the future, as well as minimise the risk of litigation. In this article we give a brief overview of the most common issues that affect employers covered by the Federal Industrial Relations (IR) system.
State or Federal IR system?
Not all employers fall under the same laws. While most are within the Federal IR system, which is predominantly dictated by the FW Act, there is a state IR system that still covers certain organisations. This state coverage includes the state public services (including most teachers and hospital workers), partnerships, sole traders and non-trading incorporated associations.
A company (whether Propriety Limited or Limited) and its employees will generally be covered by the Federal system. If you are not a company, it is important that you ascertain which system covers you, as this will dictate the application of all other industrial laws. The question as to which system covers you can sometimes be a difficult one, especially for certain incorporated associations and not-for-profit organisations.
Furthermore, those employers covered by the state IR system will still have certain Federal laws apply to them and vice versa (e.g. an employer covered by a state system is still required to comply with the Superannuation Guarantee (Administration) Act 1992, which is a Federal Act.)
The remainder of this article primarily focuses on laws and obligations for those under the Federal IR system.
In the Federal IR system, modern awards and enterprise agreements cover much of the workforce. In all modern awards and enterprise agreements there is an obligation on employers to consult with employees on major change in the workplace, including changes to the organisation’s production, program, organisation, structure or technology that are likely to have significant effects on employees. 'Significant effects' includes termination of employment, loss of job opportunities and the transfer and restructuring of jobs.
An employer considering making major changes to the workplace (including redundancies) should determine whether a modern award or enterprise agreement covers the affected employees and take immediate steps to ensure they comply with the relevant consultation provisions. Relevantly, in determining whether a terminated employee was made genuinely redundant (rather than unfairly dismissed), the Fair Work Commission must take into account whether the employer consulted with the employee prior to the termination of employment.
Termination in writing
Under section 117 of the FW Act, an employer must notify an employee in writing of their termination and the date from which it takes effect. There are exceptions to this rule, including casual employees, termination for serious misconduct and employees who have been employed for a specified period of time or specified task. However, even in these circumstances, it is advisable to ensure the termination of an employee is clearly communicated to them in writing, along with the reason for termination.
Superannuation guarantee maximum payment cap for high income employees
While most employers are aware of the obligation to pay superannuation contributions to all employees at the legislated rate (currently 9.5% of an employee’s ordinary time earnings), many are not aware that there is a legislative cap on contributions called the Maximum Superannuation Contribution Base. This is the maximum income on which employers must pay the Super Guarantee. Employers are notrequired to make superannuation contributions for income paid above this amount.
The Maximum Superannuation Contribution Base for the 2015/2016 year is $50,810 per quarter (or $203,240 annually). If you have employees earning income above this threshold, be aware you are not required to make superannuation contributions on their behalf for any amount above the Maximum Superannuation Contribution Base. However, the terms of any employment contract may provide differently and allow for superannuation contributions based on all income, so these should be drafted and reviewed with care.
Minimum terms and conditions
As noted above, it is important that an employer establish which IR system they are under in order to ascertain the minimum legal obligations they are required to comply with. For corporate employers certain minimum terms and conditions of employment are contained in the FW Act and are called the National Employment Standards (NES). The NES cover such things as leave (annual, personal, community, carers, parental etc.), redundancy pay, notice payments, public holiday requirements and the giving of a Fair Work Information Sheet to all new employees.
Obligations under the NES cannot be contracted out of and any attempt to do so will be unenforceable.
Method and frequency of payment
There are rules surrounding how and when an employer pays an employee under the FW Act. An employer must pay their employees at least monthly, in money and 'in full' (see below in regard to unauthorised deductions from salary/wages). A modern award or enterprise agreement may require more frequent payments.
The requirement to pay 'in money' may seem obvious but is necessary to ensure alternative methods of payment such as gift vouchers or goods are not used as a form of payment.
Deducting amounts from employee’s salary or wages
While it may be tempting for an employer to deduct from an employee’s wages or salary an amount they believe owed to them (e.g. to cover the cost of damage caused by an employee to equipment, to be reimbursed for a previous overpayment etc), such deductions will be unlawful in most circumstances. The FW Act prescribes the limited situations where an employer may legitimately deduct from an amount owed to an employee as follows:
- When the deduction is authorised in writing by the employee and is principally for the employee’s benefit;
- When the deduction is authorised by a Modern Award, an enterprise agreement or an order of the Fair Work Commission; or
- When the deduction is authorised by a law of the Commonwealth, a State or Territory, or an order of a court.
If an employee does authorise a deduction from their pay, the written authority must specify the amount to be deducted. An employee can withdraw their authorisation at any time.
If an employer believes they are owed money by their employee, they should first determine whether an enterprise agreement or modern award that covers them allows for such a deduction. If they are not covered by an enterprise agreement or modern award that allows for a deduction, then they must seek the written authorisation of the employee before attempting to deduct the amount from the employee’s wages or salary.
Individual flexibility agreements
Modern awards and enterprise agreements cover much of the workforce and dictate most of the more specific terms and conditions of employment that are not contained in the NES or other legislation. Employers need to be aware that these instruments cannot be contracted out of, other than through an individual flexibility agreement, nor can lesser terms in a common law contract over ride the minimums contained in the award or enterprise agreement.
The only legitimate way to alter some minimum terms and conditions of a modern award or enterprise agreement is through an individual flexibility agreement (IFA). An IFA allows an employer and employee to agree in writing to alternate terms and conditions but only for certain obligations.
For award covered employees, the parties can agree to vary:
- arrangements for when work is performed such as working hours;
- overtime rates;
- penalty rates;
- allowances; and
- leave loading.
For an enterprise agreement covered employee, an IFA can only alter the terms of the enterprise agreement that are specifically mentioned in the flexibility term of the agreement as being alterable (flexibility clauses in enterprise agreements are mandatory). Accordingly an employer should ensure they include in their flexibility clause the types of things they wish to be able to alter for individual employees.
There are a range of requirements surrounding IFA’s including that the employee can be no worse off under the IFA than under the award/enterprise agreement. An IFA must also be in writing, cannot be a condition of employment or entered into before employment begins and cannot include “prohibited matters”.