From 1 January 2010 for employers in the national system, the new modern awards apply as a common rule to all employees in an occupation or industry as described in the scope of each modern award. There are 122 modern awards in all. The impact of the new modern awards on industry is significant. Labour costs will increase for some employers as a result of the new modern awards. Some employers will find that their employees are covered by a modern award where those employees were not previously covered by any award.

In recognition of this impact, model transitional provisions have been included in most of the modern awards to phase in the impact over 5 years.

Which entitlements are phased in?

The model transitional provisions only apply to the phasing in of minimum wages, including wages for junior employees, employees to whom training arrangements apply and employees with a disability, casual and part time loadings, Saturday, Sunday, public holiday, evening and other penalties and shift allowances.

Entitlements not being phased in include allowances such as laundry allowance, meal allowance and tool allowance. Hours of work clauses in modern awards are not phased in and apply with effect from 1 January 2010 as do part time work provisions.

What is the phasing in period?

The model transitional provisions provide for a five year phasing in period commencing on the first pay period after 1 July 2010.

The phasing in provides for changes to take effect in 20% increments.

For example if the existing casual loading rate is 20% and the modern award provides for a casual loading of 25% then the differences is 5%. The change will be phased in as follows.

However, employers will need to take into consideration the minimum wage decisions that Fair Work Australia (FWA) will make each year before 1 July, in determining the actual amount of any increase or decrease when implementing the phasing in schedule.

If I am already paying more than the minimum award rate, do I have to increase my employee’s wages?

Where an employer has previously made over award payments, and the over award payment is equal to or greater than the minimum entitlement under the modern award, then the employer can continue to make payments at the same rate.

The model transitional provisions allow for any increases to be absorbed into over award payments and do not require employers to maintain or increase any over award payments.

What happens if the new pay rate is lower?

If the adult wage rate under the modern award is lower than the rate that was paid to an employee under a pre-existing award, then the reduction will also be progressively phased in. The phasing in schedule also allows for the change to be phased in by 5 equal annual instalments, commencing on 1 July 2010. However, employers will also need to take into account any further minimum wage decisions made by Fairwork Australia on or before 1 July each year.

Employers should note that the modern awards are not intended to result in less take home pay for individual employees.

FWA can make an order, called a Take Home Pay Order, requiring or relating to the payment of an amount to employees to ensure that their take home pay is no less.

Do the transitional provisions apply if no award applied before 1 January 2010 or the previous award did not contain a similar provision to the modern award?

Where no award applied prior to 1 January 2010 but a modern award now applies, the loadings and penalty rates can still be phased in. Similarly where there was no similar provision in a pre existing award, for example a weekend penalty loading, employers can still phase in the entitlement.

How will the BOOT be applied?

New Regulations introduced late last year provide that until 31 December 2014, FWA must take into account the transitional provisions in modern awards when applying the Better Off Overall Test to an enterprise agreement by assessing the enterprise agreement at the test date and at 31 July each year during its nominal term. FWA must be satisfied that the employees would be better off overall at each of the points in time when the comparison is made.

What should employers do?

Employers should carefully review the transitional provisions in any modern award that applies to their workforce to ensure that they:

  • understand which entitlements can be phased in;
  • have identified any allowances that must be paid immediately;
  • are complying with provisions that have immediate impact such as hours of work clauses;
  • have correctly calculated the amount of any increase to be paid from 1 July 2010; and
  • have correctly calculated the increase in any loadings such as casual loadings or penalty rates that will apply from 1 July 2010.

Employers who are negotiating an enterprise agreement should ensure that the enterprise agreement will pass the BOOT at each of the assessment dates.