Penalty rates are a critical issue for Australian businesses – they already make up a significant proportion of many organisations’ total labour costs. Penalty rates will take on even higher importance in the future, as Australians continue the move towards working ‘flexibly’ – which often means performing work outside the traditional ‘business hours’ of 9am to 5pm, and regularly working at night, on weekends and during public holidays.

What are penalty rates?

Despite shifts in the way in which work is being performed, penalty rates have remained a stable feature of the Australian industrial relations system. Penalty rates are, in short, higher rates of pay that apply when an employee works during what have been traditionally regarded as ‘socially unacceptable’ times or days – weekends, public holidays or late at night. Typically, penalty rates can range from an extra 25% of the usual hourly wage rate (for example, for afternoon shifts) to 150% or more (for working on public holidays).

Are the goalposts moving?

Employer groups in many industries (especially hospitality, retail and services) have recently been pressing for lower penalty rates for some time – based on the inherent nature of their business and consumers’ increasing expectations around longer opening hours and days. The argument is that penalty rates, especially for work on weekends and outside normal business hours, reduce the incentive (or, perhaps, create a disincentive) for businesses to trade at those times – and that if penalty rates did not apply, significant additional employment opportunities would be created. The call for reform of penalty rates has been repeated by former Treasurer Peter Costello who, in a recent speech to the Tourism and Transport Forum, argued for lower penalty rates as a priority to encourage employment.

It is understandable that penalty rates have been one of the ‘last bastions’ for the trade union movement and not surprising that unions have strongly resisted these calls, arguing that they are an attack on the Australian way of life.

Is the referee blowing the whistle on penalty rates?

This debate about penalty rates has played out in the Fair Work Commission – which is charged with responsibility for considering penalty rates as part of a ‘fair and relevant minimum safety net’ in awards. However, the Commission’s 2012 review of awards led to two arguably competing decisions on penalty rates:

  • in March 2013, the Commission rejected applications by employers to reduce weekend and evening penalty rates in the Retail Award and the Fast Food Award. While employers argued that lower penalty rates would increase employment, productivity, competitiveness and the efficient and productive performance of work, the Commission found that they had not brought sufficient evidence in support of those claims; and
  • in May 2014, restaurant industry employers had some limited success with similar arguments in relation to the review of the Restaurant Industry Award. The employers had sought the complete abolition of penalty rates for casual employees (except on public holidays). While that goal was not achieved, the Commission did reduce the Sunday penalty rate from 50% to 25% for transient and lower-skilled casual employees working mainly on weekends – on the basis that the 50% rate tends to ‘overcompensate them for working on Sundays and is more than is required to attract them for work on that day’.

Are we just taking a break for half time?

The game is not over by a long shot. Penalty rates are being reviewed in at least three separate ways:

  • the Restaurant Industry Award decision is now being appealed by United Voice (the hospitality sector union);
  • the Federal Government has foreshadowed a Productivity Commission inquiry into workplace laws, which is likely to consider the role of penalty rates; and
  • the Commission is currently undertaking a further review of the award system. This latest review is more comprehensive than the 2012 review – it is designed to be a root and branch review to ensure that all awards reflect a ‘fair minimum safety net’ and continue to be relevant to the needs and expectations of the community. As part of that review, the Commission is likely to consider whether the penalty rates specified in awards are appropriate to that particular industry – indeed, the Federal Government has submitted that it would be appropriate to schedule a review of penalty rates after 30 June 2014.

Whatever the timing of future changes, it will be important for employers who are interested in influencing the outcome to participate in these processes as far as possible – and experience suggests that a coordinated, comprehensive approach by groups of employers in a particular industry increases the prospects of ‘kicking a goal’.