When New South Wales, Queensland, South Australia and Tasmania agreed to help create a single national system for the private sector, the effect was to transfer a large number of employers into the federal system. The change affected employers who were not constitutional corporations – for example, those who operated as sole traders or employed staff through partnerships.

Many of these ‘referred’ employers had previously been covered by State awards. By virtue of Schedule 3A to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (TPCA Act), any such award applicable to a referred employer as at 31 December 2009 was deemed to have become a federal instrument known as a Division 2B State award.

These instruments were given only a short duration, with most set to terminate at the end of 2010. The exception is any award applicable to a single enterprise. This may continue to operate until the end of 2013, unless and until modernised or terminated before then by Fair Work Australia (FWA).

Although most Division 2B State awards have now terminated, their effect is far from at an end. FWA has formulated transitional provisions to modify the operation of most modern awards in relation to employers and employees formerly covered by such instruments: see Award Modernisation – Division 2B State Awards [2010] FWAFB 8558.

Under the model provisions, where a modern award covers an employer formerly subject to a Division 2B State award, that instrument is preserved in effect until the end of January 2011. From 1 February 2011, however, the employer must comply with the modern award. This includes any wage rates, loadings or penalty rates required by the ‘phasing’ provisions contained in Schedule A of most modern awards.

With certain exceptions, the phasing schedule operates by reference not to the rates set by the Division 2B State award, but to its equivalent NAPSA (notional agreement preserving State awards) and pay scales. These instruments were created back in March 2006 out of the old State award, when the Work Choices amendments moved incorporated employers into the federal system. Confusingly, the rates they set can be different to the ones that now appear in the State award from which they originated.

The overall effect of the new transitional arrangements is that, from February 2011, the award rates applicable to referred employers will generally be the same as those set for other national system employers.

This is subject to the principle, however, that there should be no reduction in the take-home pay for existing employees. Under the TPCA Act, take-home pay orders may be sought from FWA to prevent or compensate for any such reduction.

Employers affected by these changes should be sure to obtain advice on the pay rates or loadings that will apply to them from 1 February. While helpful information can be found on the Fair Work Ombudsman’s website (www. fairwork.gov.au), the complexity of the transitional arrangements mean that it may be sensible to seek more specific guidance.