We recently issued a brief summary of the Fair Work Commission’s (FWC) 23 February 2017 decision on penalty rates. We now set out further details of the proposed changes for each of the modern awards considered and how they may affect your business.

What was the case about?

The FWC must conduct 4-yearly reviews of modern awards. This is in the context of ensuring that each modern award complies with the overriding objective of the award system. Pursuant to section 134(1) of the Fair Work Act 2009 (Cth), that objective is to ‘ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions’.

In its Decision the FWC states that, for the purposes of the modern award objective, ‘fairness’ is assessed from the perspective of the employees and employers covered by the particular modern award and ‘relevance’ is assessed by considering whether the modern award is suited to contemporary circumstances.

Having regard to the modern awards objective, the FWC concluded in its Decision that penalty rates are no longer provided to deter employers from scheduling work outside normal hours. Rather, it is the “disutility” associated with working on weekends and public holidays that should be the primary consideration when setting penalty rates.

What is “disutility”?

“Disutility” is a term used in classical economics, however the Macquarie Complete Australian Dictionary defines it as “the quality of causing inconvenience or harm; injuriousness”. The FWC’s assessment of the disutility associated with working on weekends and public holidays is emphasised by 97 incidences of the word in the Decision.

In forming its view on appropriate penalty rates, the FWC considered the extent of the disutility of working at certain times and on certain days by assessing the impact of such work on an employee’s health and work-life balance, whilst taking into account the preference of employees for working at those times.

For example, the FWC noted (at [689]) the proposition that:

There is a disutility associated with weekend work, above that applicable to work performed from Monday to Friday. Generally speaking, for many workers Sunday work has a higher level of disutility than Saturday work, though the extent of the disutility is much less than in times past.”

Is your company affected?

Penalty rates in the following 6 modern awards were considered by the FWC:

Hospitality Group

  • Hospitality Industry (General) Award 2010 (Hospitality Award) – covers employers and their employees working in hotels, motels, serviced apartments, caravan parks, holiday flats or units, hostels and other similar short-term accommodation facilities. It also includes those working in restaurants and function areas connected to such facilities.
  • Registered and Licensed Clubs Award 2010 (Clubs Award) covers employers and their employees working in clubs registered or recognised under State, Territory or Commonwealth legislation (such as bar staff in a club at a football, cricket or sports ground, and other persons employed to care for such grounds).
  • Restaurant Industry Award 2010 (Restaurant Award) – covers employers and their employees working in restaurants, reception centres, night clubs, cafés and roadhouses, any team room and catering by a restaurant business.

Retail Group

  • Fast Food Industry Award 2010 (Fast Food Award) – covers employers and their employees working in the “fast food” industry, where food or beverages are primarily consumed away from the point of sale.
  • General Retail Industry Award 2010 (Retail Award) – covers employers and their employees working to sell or hire goods and services to final consumers for personal, household or business consumption, such as in supermarkets, department stores or other retail outlets.
  • Pharmacy Industry Award 2010 (Pharmacy Award) – covers employers and their employees working in pharmacies registered under State or Territory legislation, but does not include pharmacies owned by a hospital or other public institution or operated by government.

What changes have been made?

As noted above, the FWC considered the “disutility” of working on Sundays and public holidays to determine whether the relevant penalty rates should be reduced.

By way of summary, the FWC concluded the following:

  1. No changes will be made to Saturday penalty rates;
  2. Sunday penalty rates will be reduced (but remain higher than Saturday penalty rates);
  3. The public holiday penalty rates for full-time and part-time employees will be reduced from 250% to 225%. The public holiday rate for casual employees will be 250% (a reduction of 25% for most); and
  4. There will be some changes to late night and early morning penalties for those employees covered by the Restaurant Award and the Fast Food Award.

Regarding the rate reduction for casual employees, the FWC adopted the Productivity Commission’s ‘default’ method, which is to add a casual loading of 25% to the Sunday penalty rate of full-time and part-time employees.

Hospitality Industry (General) Award 2010 (Hospitality Award)

  • Sunday penalty rates were reduced by 25% for full-time and part-time employees. The penalty rate was not reduced for casual employees.
  • Penalty rates payable on public holidays will also be reduced by 25% for all employees.

Please click here to view the table. 

Registered and Licensed Clubs Award 2010 (Clubs Award)

  • No changes were made to this award. The FWC said that the case put forward by Clubs Australia Industrial was not sufficient to warrant variation.
  • The FWC questions the need for this award in the future and has proposed the following 2 courses of action:
  1. The Clubs Award be revoked, with relevant employers and employees to be covered by the Hospitality Award instead; or
  2. There be a further opportunity for submissions on changes to the Clubs Award.

The FWC’s preferred view is option 1 above. Interested parties have until 24 March 2017 to file short submissions on the future of the Clubs Award.

Restaurant Industry Award 2010 (Restaurant Award)

  • No changes were made to Sunday penalty rates on the basis that the case put forward by Restaurant and Catering Industry Australia was not sufficient to warrant variation. However, a further opportunity is being provided to Restaurant and Catering Industry Australia (and other interested parties) to make submissions in relation to variations of Sunday penalty rates by 24 March 2017.
  • The early morning span of hours for which employees receive a 15% loading was reduced by one hour. This amendment was made because many cafés open from 6:00am, and the majority of the other modern awards with similar provisions provide for the span of ordinary hours to start at 6:00am or earlier. Accordingly, the 15% loading will only need to be paid to staff that work before 6:00am (not 7:00am).
  • The span of hours for the late night penalty was not varied despite Restaurant and Catering Industry Australia arguing that it should be altered to make the award simpler and improve compliance.
  • Penalty rates payable on public holidays will be reduced by 25% for full-time and part-time employees.

Please click here to view the table. 

Fast Food Industry Award 2010 (Fast Food Award)

  • The span of hours for which employees are to receive the late night penalty of 10% and the early morning loading of 15% were reduced by an hour. This results in consistency with the Restaurant Award.
  • Sunday penalty rates were reduced for level 1 employees only. This is because level 1 employees are more likely to have a preference to work on weekends, and more hours on Sundays, than level 2 and 3 employees. It was determined that the existing penalty rate for level 1 employees working on a Sunday overcompensates the level of disutility associated with Sunday work.
  • Penalty rates payable on public holidays will also be reduced.

Please click here to view the table. 

General Retail Industry Award 2010 (Retail Award)

  • Sunday penalty rates will be reduced. The FWC noted that the Retail Award already provides for full-time employees that regularly work Sundays to have three consecutive days off (one of which must be a Sunday) every four weeks. It also considered that weekend work is a feature of the retail sector and that the penalty rate reduction will be somewhat ameliorated with an extension in trading hours and the result of more working hours.
  • Penalty rates payable on public holidays will also be reduced.

Please click here to view the table. 

Pharmacy Industry Award 2010 (Pharmacy Award)

  • Sunday penalty rates will be reduced during the hours of 7:00am and 9:00pm. In deciding to reduce Sunday penalty rates, the FWC noted that the Pharmacy Award provides for annualised salaries and includes terms to minimise the incidence and impact of weekend work for full time employees. It also noted that weekend work is a feature of the Pharmacy sector and the reduction in penalty rates may result in some pharmacies remaining open longer on Sundays, in turn improving access to health care.
  • Penalty rates payable on public holidays will also be reduced.

Please click here to view the table. 

*Previously, the Sunday penalty applied for all hours worked on a Sunday.

**The penalties that will apply for Sunday work before 7:00am and after 9:00pm, Saturday work and morning/evening work on weekdays will be subject to further proceedings.

When will the changes come into force?

The changes have not been finalised. However, the proposed timeline for the changes to come into effect is as follows:

  • Late night / early morning penalties – the FWC intends for the variations to commence operation on 27 March 2017, following a period of consultation;
  • Public holiday penalty rates – the reduced public holiday penalty rates will come into effect on 1 July 2017;
  • Sunday penalty rates – the FWC will implement transitional arrangements for the Sunday penalty rate reductions. The transitional arrangements have not been finalised, however the FWC’s provisional view is that the reductions should be phased-in over 2 or more years. The FWC will receive submissions in relation to these provisional views by 24 March 2017 and the matter will be listed for hearing in May 2017.
  • Employers in the affected industries need to be aware of the dates and relevant transitional arrangements for these amendments.
  • Employers must also be careful when implementing the reduction in penalty rates. An employer will not be able to reduce an employee’s pay in circumstances where they are not paid in strict accordance with the relevant modern award, including where:
  1. the employee’s pay has been agreed in an employment contract; or
  2. an enterprise agreement or “EA” applies.
  • The FWC has noted that the changes made by this decision will not have a flow on effect to other modern awards.