In a decision that will have far reaching impact, the Fair Work Commission (FWC) has cut a range of public holiday and penalty rates for workers in the hospitality, restaurant, fast food, retail and pharmacy industries.

After a “substantial undertaking”, the FWC handed down its decision in regard to cutting weekend and public holiday penalty rates for workers in these industries, making cuts of up to 25% to Sunday and Public Holiday penalty rates.

In reaching their decision, the FWC was motivated by the fact that historically these penalty rates were introduced as a strong “deterrence” factor. That is, they were implemented in order to deter employers from scheduling work outside of “normal hours”. However, this deterrence is no longer a relevant consideration to the extent the penalty rates no longer have the objective of preventing employers scheduling work, but are instead solely concerned with compensating employees for the “disutility” associated with working weekends and public holidays.

Further, the FWC was cognisant that the “disutility” associated with Sunday work was not the same as it was historically, presumably because attitudes and values have changed regarding working on what was traditionally a day of rest. Nonetheless the FWC did not propose to reduce Sunday penalty rates to their Saturday equivalent, as working on a Sunday still came with greater “disutility” for the employee than Saturday work. Accordingly, Sunday penalty rates generally remain slightly higher than Saturday penalty rates despite the cut.

The FWC was satisfied that the Saturday penalty rates under review achieved the objective of the Modern Award system (providing a fair and relevant safety net minimum) and should not be subject to any change.

The table below sets out the proposed Sunday penalty rate changes to the Hospitality, Retail and Pharmacy Awards: 

Click here to view the table. 

The below table sets out the proposed changes to the Public Holiday penalty rates to the Hospitality, Retail and Pharmacy Awards: 

Click here to view the table. 

The FWC noted that the decision to cut penalty rates was a well considered one, with 39 days of hearing, 143 witnesses and 5,900 submissions received on the issue. Nonetheless the decision, which will affect the take home pay of thousands of workers, is a contentious one and may be subject to challenge from the unions and other interested parties.

When considering these penalty rate changes and how it may affect your business, employers should be aware that:

  • The penalty rate cuts will only apply to those Modern Awards the subject of the review and do not encompass all those workers who are required to perform work on a Sunday or public holiday. In fact, the vast majority of Modern Awards do not have changes to their Sunday or public holiday penalty rates.
  • Not all awards in the hospitality sector were successful in arguing for a reduction to penalty rates. The FWC did not accept that those employees covered by the Clubs Award or Restaurant Award should have cuts to their Sunday penalty rates.
  • Cuts to penalty rates do not apply “across the board” to all employees covered by the relevant Award. For example, only Level 1 employees covered by the Fast Foods Award will have their Sunday penalty rate cut, Level 2 and Level 3 employees under the same Award will not have their Sunday penalty rate cut.
  • The changes are not effective immediately. The proposed introduction date for the cuts to Public Holiday rates is 1 July 2017. The proposed introduction date for the cuts to Sunday penalty rates will be phased in over at least two annual installments. The FWC will continue to take submissions on the proposed variations, their exact terminology and the transition period.

Finally, while the FWC did not agree to Sunday penalty rate cuts for those employees covered by the Clubs Award or Restaurant Award, they have left the door open for those covered by these Awards to provide further submissions to the FWC on these matters. In particular:

  • FWC have expressed interest in an option put forward to completely revoke the Clubs Award and instead change the coverage of the Hospitality Award to cover employees now covered by the Clubs Award. It has invited interested parties to provide submissions on this option by 24 March 2017.
  • While not convinced by the Restaurant and Catering Industrial Association to cut weekend penalty rates of those employees covered by the Restaurant Award, the FWC has invited interested parties to flag their interest in continuing to press their claim by 24 March 2017.