Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

Special minimum wage rate arrangements that apply to juniors, trainees and apprentices

Minimum wages for juniors, trainees and apprentices are generally tied to a percentage of an adult award rate of pay, or some other pre-determined formula in the case of some traineeship rates. The practical effect of these wage arrangements is that these workers are generally on rates of pay that fall well below the national minimum wage that applies to an unskilled, entry-level adult employee. Incontrovertibly then, juniors, apprentices, and trainees are by definition some of the lowest paid workers in the country.

The PC identifies some of the reasons generally proffered for why these three categories of workers should have discounted, lower rates of pay. For example, there is a view that these workers are generally less productive by virtue of their age and lack of experience, and that full adult rates of pay would disadvantage them in the labour market. In the case of apprentices and trainees, the discounted rate of pay clearly also takes into account the time the worker spends in off-the-job training.

While it may be true - certainly in the case of apprentices and trainees - that unions do not argue for these discounted rates to be eliminated entirely, there must continue to be a mechanism for scrutiny and review of the extent of the discount, and the reasons for those lower rates, to determine if they continue to be justified.

Given that there are different arrangements and considerations that apply to each of the three categories, our submission deals with each of them in turn below. However, there are two points of general application we first wish to make to the PC.

The first is that, as low-paid workers, apprentices, trainees, and juniors who rely on the award rate of pay must continue to have access to annual wage increases determined through the FW Commission’s annual minimum wage review. Unions support the current practice of apprentice, trainee and junior rates being adjusted in line with increases to the national minimum wage and other award classification levels, provided that this delivers real wage increases.

The second, as noted above, is there must be an ongoing mechanism to assess the continued adequacy and relevance of these discounted wage arrangements, taking into account factors such as changing community standards, changes in the labour market, industry characteristics, evidence of the productivity and experience of these workers, and the needs of the low paid. Again, these should continue to be matters for the FW Commission to determine based on applications brought before it and the evidence and submissions from interested parties. We note there have been two such recent cases conducted under the provisions of the ‘two-year’ transitional review of the FW Act, which resulted in improved wages for juniors and apprentices respectively. Details of those cases are provided below.

We now provide further detail on issues relating to apprentices, trainees and juniors respectively.

Apprentices

In the vast majority of cases, apprentice rates in modern awards are determined as a fixed percentage of the award rate for a tradesperson (C10 or equivalent trade rate) for each year or stage of the apprenticeship.

Historically, the discounting of apprentice wages in this way was designed to compensate the employer for the lower productivity of the apprentice in the early years of the apprenticeship and the need for employers to allocate resources to their on-the-job training.²¹⁰

By virtue of their link to the C10 or equivalent tradesperson’s rate, apprentice wages are adjusted automatically each year in line with annual increases to award rates of pay determined by the FW Commission and its predecessors. Unions support this as a process, although we remain concerned that the link to ‘C10 or equivalent’ has meant that apprentice wage increases, as with all other award rates, have failed to keep pace with general community wage movements. Our submission to the FW Commission in the Apprentice Case discussed below dealt further with this point.

Notwithstanding this process of annual wage adjustments, until recently, the underlying wage structures (i.e. the relevant percentage of the tradesperson’s rate) had remained virtually unchanged since the 1970s in most awards, leaving apprentices on unsustainably low rates of pay.

In 2012, the ACTU and affiliated unions – the AMWU, CFMEU, and CEPU - made an application to the FW Commission to improve the wage arrangements for apprentices, as well as other conditions of employment. The claim in relation to apprentice wages included:

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  Increasing the entry level rate for first year apprentices in modern awards to 60% of the C10 trades rate (previously percentage rates ranged from between 35% to 55% of the trades rate; most sat around 40-45%);
  
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  Providing for adult apprentices to be paid no less than the rate for the minimum adult classification in the relevant modern award (i.e. the National Minimum Wage or higher); and
  
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  Ensuring that adult apprentices who were employed in a workplace prior to starting an apprenticeship do not suffer a reduction in pay.
  

The key arguments in support of the union claims included:

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  Apprentices are by any definition low paid. As a group of employees, they are among the lowest paid in our community, and regularly struggle to make ends meet, often relying on family and friends to get by. Apprentice wages were as low as $250 a week in some awards (2013 figures) – barely above the New Start unemployment benefit - and were typically around $300-350 a week. The claim was therefore about ensuring fairness in apprentice wages and giving apprentices the chance to enjoy a reasonable standard of living, something the evidence confirms they were not able to do on current award rates of pay.
  
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  Apprentice wage structures that still largely applied in modern awards were designed for the 15 year old school leaver starting an apprenticeship as their first ever job, living at home with minimal expenses. That typical apprentice no longer exists. Apprentices today are older with more financial responsibilities, have higher levels of schooling, and a wider range of skills and previous work experience. Modern awards should reflect those modern day realities.
  
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  A properly functioning apprenticeship system provides benefits for individuals, employers and the wider economy but these benefits are not being realised with apprenticeship completion rates around 50%. Poor wages are one of the key reasons explaining why apprentices drop out (and why they may not commence in the first place). This is particularly so when apprentices compare their rates of pay with other work and training options available to them. Improved apprentices wages would provide a more realistic chance of attracting and retaining apprentices into the future. The claim targeted first year rates where the bulk of attrition occurs and cost of living pressures are most acute.
  

We refer the PC to our extensive submissions in the Apprentice Case for further details of the evidence and argument in support of improved apprentice wages.²¹¹

The apprentice case was heard before a full bench of the FW Commission through the course of 2013. On 22 August 2013, the Full Bench issued its decision.²¹² It did not grant the unions’ claim in full, but it did determine substantial improvements to apprentice wages and conditions. The key components of that decision in relation to apprentice wages were as follows:
Increases to ‘junior’ apprentice rates

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  A new first year apprentice rate of 55% of C10 or the equivalent trade rate for apprentices who have completed year 12, and 50% to those apprentices who have not completed year 12; and
  
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  A new second year rate of 65% for apprentices who have completed year and 60% to those who have not.
  

Adult apprentice rates

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  Adult apprentice provisions to be inserted in modern awards where they don’t currently exist.
  
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  The new rate for a first year adult apprentice will be 80% of the C10 rate, unless the award already provides for a higher rate.
  
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  The new rate for a second year adult apprentice will be the national minimum wage or the lowest adult classification rate in the award, whichever is the greater.
  
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  Unless the award already provides otherwise, an adult apprentice will be defined as an apprentice who is 21 years of age when they commence their apprenticeship.
  

Existing worker adult apprentices

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  Protection of minimum rates for existing workers who take up an adult apprenticeship with their current employer.
  

Competency-based wage progression

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  Provisions for competency-based wage progression to be introduced into awards that were subject to the AMWU and CFMEU applications. This means apprentices under those awards progress through the wage rates for each year or stage of the apprenticeship based upon achievement of the required competencies, rather than through an age-based or time-served model.
  

Implementation and phasing arrangements

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  The new rates (for both ‘junior’ and adult apprentices) will apply only to apprentices who commenced their apprenticeship on or after 1 January 2014
  
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  The increases will be phased in as follows:
  

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  If the relevant increase is equal to or less than a 5% increase in the relevant percentage of the award reference rate then the full increase applies from 1 January 2014
  
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  If the relevant increase is more than a 5% increase in the relevant percentage of the award reference rate, then the percentage or rate increases by 5% from 1 January 2014, with the remainder of the increase taking effect from 1 January 2015
  

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  Where adult apprentice rates are being inserted in awards for the first time, the new rates will apply from 1 January 2014 with no phasing-in.
  

In its decision the Full Bench found the changes were necessary to ensure the apprenticeship system met the needs of business and the Australian economy and was both relevant and attractive to modern day apprentices. Among other things, the Full Bench took into account the fact that wage structures had been set when most apprentices were 14, 15, or 16 years of age on commencement. Many are now 17 or older and have completed year 12 schooling and are already undertaking part-time or casual work with higher wages than they receive under an apprenticeship. In some trade areas, a significant number of apprentices have completed a vocational qualification.

It also found that apprentice rates should be considered in light of evidence as to the hardships experienced by apprentices on (the then) current rates of pay and community expectations of reasonable living standards.

The Full Bench considered that increased rates may assist to improve the attractiveness of apprenticeships compared to other training or employment options for young people. It found that only about half of all apprentices complete their apprenticeship and increased wages may also assist in improving completion rates. The Bench was not persuaded having regard to the material and evidence presented that the increases to apprentice wages would have a significant adverse effect on apprenticeship commencements, business or the national economy.²¹³

In terms of the perennial argument about the impact of wages on employment, the full bench decision to increase apprentice wages was criticised for the impact it would have on the employment of apprentices.

We do not seek to overstate a direct causal link either way between apprentice wages and apprentice commencement numbers and acknowledge a range of factors can be at play. In the apprentice case decision, the full bench noted the number of studies that suggest apprentice wages are far from the critical factor in determining employment decisions by employers. It referred to the Toner Report, ²¹⁴ which found the key drivers of apprentice commencements are macro-economic variables, such as growth in demand for the output of the firm, and not the level of apprentice wages. In our submission then, apprentice commencements can be influenced by a range of factors but are largely dependent on business activity. If, for example, housing construction activity picks up then it is likely more apprentices will be employed in the building industry.

However, if we do look at apprentice wages and apprentice commencements, at the very least it can be said the dire warnings about apprentices being priced out of employment do not appear to have been borne out, with commencement numbers standing up well since the wage increases came into operation, particularly given the decline in the labour market over the past 12 months.

We note the most recently released September quarter 2014 figures from the NCVER show a 15% decrease in trade commencements over the previous 12 months. However, this result appears to be at odds with other figures from the NCVER cited below and further data releases are required to get a full picture of what has happened with apprentice commencements in the full 12 months and more since 1 January 2014. The NCVER figures up to the June quarter 2014 had shown that trade commencements increased 6% over the previous 12 months.²¹⁵ Early trend estimates for the September quarter showed a further increase from 20 900 to 21 500.²¹⁶ Recently released early trend estimates for the December quarter indicated another increase in trade commencement numbers in the December quarter.²¹⁷

This evidence is consistent with previous cases where apprentice wages have increased as a result of tribunal decisions and there has been no discernible adverse impact on apprenticeship commencement numbers. In fact, the opposite has been the case. For example, in Western Australia, in 2006, the state Industrial Relations Commission extended adult apprenticeship rates to award-free employees that three years earlier had been granted to award employees. In doing so, it found the operation over that three year period of the new adult rates for award employees (which were aligned to the third year rate of an apprenticeship; similar to the increase awarded by the FWC decision) had not made adult apprenticeships ‘unattractive nor uneconomic’ or a disincentive to employers to employ adult apprentices’. In fact there was evidence of the number of adult apprenticeships rising significantly across almost all areas.²¹⁸

Similar evidence of apprenticeship commencements increasing is available in relation to apprentice wage increases that flowed from the 2006 Metals Award case in the AIRC.²¹⁹

We also note that while employers often argue that wage increases mean only one thing – employers will stop employing apprentices – the evidence presented in the FW Commission case was that wage increases can have a number of different and positive affects on the practices and behaviour of both apprentices and employers. For example, the evidence of Professor John Buchanan was that wage increases can be a trigger for changes in practice that improve productivity, “by triggering a reassessment of how labour is deployed, how it’s trained, how it’s supported, how it’s utilised as a productive input”²²⁰

A representative of the NSW Business Chamber also agreed under cross-examination that it is not just a question of the cost of labour, it is also the about the quality of labour, and if faced with a wage increase for apprentices the Chamber would not simply be advising their members to stop employing apprentices but to look at how they could use their apprentices more productively and look at their recruitment and selection of apprentices.²²¹