20/10/2016 - 15:15

Are the days of overtime over?

20/10/2016 - 15:15


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Modern Awards can be confusing, from determining what award applies, to identifying how each job is classified in the award, and then what your people are entitled to… Overtime?  Leave loading?  Penalty rates?

Modern Awards set out the minimum pay rates and conditions for employees within 122 industries or occupations, across Australia.

A pending decision by the Fair Work Commission (‘FWC’) could see the commencement of eradicating penalty rates and simplifying pay rates for employers. 

As most people would know, employees are typically entitled to be paid ‘overtime’ or ‘penalty rates’ when working weekends, public holidays, or outside of standard hours, with Saturday rates usually at ‘time and a half’ and Sunday at ‘double time’.

Penalty rates have a significant impact upon wage costs for a number of industries, particularly retail and hospitality. It is proposed under the current FWC review that Sunday penalty rates should be brought in line with Saturday rates. Separate to the current FWC review, the Productivity Commission recommended reducing Sunday penalty rates to be in line with Saturday rates to increase employment and productivity opportunities for retail, hospitality and entertainment industries.

The proposed change to a reduction in penalty rates would result in a higher ordinary rate of pay to ensure employees are not worse off overall.

Notwithstanding the outcome of the FWC review and Productivity Commission recommendations, it is unknown, and unclear if penalty rates will be amended or eradicated -  employers can already pay employees an all-encompassing pay rate, annualised salary or set off certain allowances and/or penalties stipulated in an award by paying a higher ordinary pay rate. This compensation method reduces payroll complexities upfront and helps employers from an administration perspective.

Large employers including Coles, McDonalds and Woolworths have Enterprise Bargaining Agreements (‘EBA’s’) that trade off penalty rates for higher ordinary wage rates, creating an all-inclusive rate. However, many smaller businesses do not have an EBA in place and operate under individual contracts of employment.

“We don’t have to pay overtime or allowances because we pay above award”.

The false perception that many employers take comfort in is that by paying above award rates they are protected from any claim and/or a requirement to pay loadings and penalty rates.  It is important to note that there is no longer an implied right to offset over award payments in a Modern Award. If you do pay above award rates or all-inclusive rates it is essential to ensure the following:

  • The relevant award is identified and relevant clause/s referenced in any offset clause in the employment contract; and
  • The employee is no worse off and that this will be monitored on an ongoing basis. 


However, not all conditions can be ‘offset’ with an all-inclusive rate and so determining and reviewing the relevant Modern Award to ensure compliance is essential.

Failure to document clearly could place the Company at risk of an under payment claim, which may be lodged at any time within six years of the underpayment, and could result in prosecution by the Fair Work Ombudsman for award non-compliance.

In summary, whilst there may be change in the wind, the Industrial Relations arena remains a complex and potentially costly area for employers to navigate.


Contact WCA Solutions - People & Culture Solutions if you require any assistance with managing your Industrial Relations and/ or general Human Resources requirements on (08) 9383 3293 or admin@wcasolutions.com.


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