A Full Bench of the Fair Work Commission has varied the General Retail Industry Award 2010 by ruling that 20 year old retail workers should receive the full adult rate after they have been employed for at least six months. After a series of hearings held in July last year, the Full Bench concluded that most junior retail employees achieve a satisfactory level of skill in their roles after about six months in employment and that there is little difference in the duties and responsibilities assigned to 20 and 21 year old retail employees or in the level of supervision required between such employees.

This decision means 20 year old workers, who were previously paid 90% of the adult rate, will receive at a minimum an extra $1.79 for each hour worked.

The Full Bench ordered that the new 100% rate be phased in in two increments, with 95% phased in from 1 July this year and the full increase applying from 1 July 2015.

Whose idea was the pay rise?

The decision results from the determination of an application made by the Shop, Distributive and Allied Employees Association (SDA) as part of the 2012 Modern Awards Review (Application) to vary the General Retail Industry Award 2010 (Retail Award). The SDA sought to vary clause 18 (the junior rates clause), which provided that 20 year old employees are to receive 90% of the relevant adult rate, to the effect that 20 year old employees would receive the adult rate. Effectively this meant 20 year old employees would receive the same minimum rate for the classification as their 21 year old colleagues.

The SDA submitted to the Full Bench that paying 20 year old employees less than the full adult rate was a discriminatory, antiquated practice. It submitted that there was no material difference between the work and duties performed by a 20 year old and a 21 year old retail employee and, in most cases, they perform work to the same standard. The SDA called evidence from younger workers across the retail sector to give evidence to the Full Bench of their experience working in the retail sector and to provide evidence that there is no difference between performance expectations of 20 year olds and those over 21.

Will this have an effect on my business? The Full Bench does not think so

The Application was opposed by many employer groups and the Australian Retail Association (ARA). The ARA and the employer groups argued that the Application should not be granted on economic grounds, and that it may result in some businesses electing not to employ junior workers as adult workers are able to perform the job more efficiently and more reliably. Evidence was called from managers of well-known independent supermarkets and some franchises in the retail sector.

However, the Full Bench was not persuaded that the variation sought would have a significant negative impact on business costs or the viability of retail businesses. Rather, it considered the cost impact of the claim to be "moderate" and would reduce as a consequence of the six month service requirement it intended to introduce.

The Full Bench also held that it was not persuaded that the variation would be likely to have a negative impact on workforce participation.

Just when you thought phasing in in Modern Awards was over

The Full Bench stated that it was mindful of the cost impact on employers of this change. It therefore decided that the Retail Award should be varied so that the new rate for 20 year old employees is phased in as follows: 95% of the adult rate to apply from the first pay period commencing on or after 1 July 2014; and 100% of the adult rate to apply from the first pay period commencing on or after 1 July 2015.

Bottom line for employers

This variation will affect any business that is subject to the Retail Award. Even those businesses which are subject to an enterprise agreement will need to ensure that the rate they pay their 20 year old employees is greater than the higher rate that will be prescribed by the Retail Award from 1 July 2014. The change may also affect negotiations for any new enterprise agreement likely to be made after 1 July 2014, given that any such agreement will need to pass the "Better of Overall Test" by reference to this higher rate of pay.

Employers should be mindful that the 5% rate increase from 90% to 95% will also take effect at the same time that the Commission hands down its Annual Wage Review decision. Employers should therefore also check the appropriate adult rate as at 1 July 2014 (which is subject to change as a result of the Annual Wage Review) when calculating the correct amount to pay 20 year old employees from 1 July 2014.

Employers should start to prepare for these necessary changes to payroll processing ahead of the 1 July 2014 change.