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

Letting “the market decide”

We have demonstrated above that the sectors in which penalty rates are most criticised are the sectors that are among the most award dependent. This is evidence in itself of the propensity of employers in the industry to do no more than the bare minimum requires. Employers in these industries have repeatedly sought in the last 3 years for certain penalty rates contained in awards to be abolished or reduced. It should therefore be assumed that if their request were granted, they would act upon it.

Employees have little choice in when they are able to work. If work during unsociable times was offered without compensatory penalty rates, some workers would continue to work those hours and some would not. The decision point for each individual worker would be different depending on their personal arrangements such as transport costs and the taper rates for any welfare support they might be in receipt of. Furthermore, as the FW Commission pointed out in the recent matter concerning the Restaurants Award, some workers would seek to take on additional hours at the expense of some of their other pursuits. This re-arrangement of time could ultimately result in some cost shifting back to the public purse. The extent of each of these influences is difficult to quantify in the abstract and it has been an experiment that the FWC and its predecessors have been duly wary of conducting for good reason.

We are firmly of the view that the FW Commission must retain its current role in the fixation of penalty rates, although as noted elsewhere in this submission we recommend that the criteria that apply to the maintenance of the award system require some adjustment.

Alternatives to Penalty Rates

For many workers, particularly those whose working hours are concentrated at unsociable times, there is no sensible alternative to continuing to receive penalty rates.

One of the ways in which penalty rates are still provided to employees, although in a different way to the traditional payment method, is through an annualised salary. Rather than receive varying rates of pay depending on when an employee works, with an annualised salary the employee receives the same rate of pay week in week out regardless of whether he or she has worked unsociable hours.

An annualised salary is a ‘rolled-up’ rate of pay that is intended to compensate an employee for many items provided for in a modern award. The rolled-up rate is higher than the base or ordinary rate under the award as it is set at a rate which means an employer can pay an employee one rate for all times worked rather than having to apply penalty and overtime rates. An annualised salary must be high enough that an employee is receiving at least what he or she would have received had he or she been receiving the various rates under the award.

There are some modern awards which provide for annualised salaries. An example is the Clerks- Private Sector Award 2010. Clause 17 provides:

17.1 Annual salary instead of award provisions

(a) An employer may pay an employee an annual salary in satisfaction of any or all of the following provisions of the award:

(i) clause 16—Minimum weekly wages;

(ii) clause 19—Allowances;

(iii) clauses 27 and 28—Overtime and penalty rates; and

(iv) clause 29.3—Annual leave loading.

(b) Where an annual salary is paid the employer must advise the employee in writing of the annual salary that is payable and which of the provisions of this award will be satisfied by payment of the annual salary.

17.2 Annual salary not to disadvantage employees

(a) The annual salary must be no less than the amount the employee would have received under this award for the work performed over the year for which the salary is paid (or if the employment ceases earlier over such lesser period as has been worked).

(b) The annual salary of the employee must be reviewed by the employer at least annually to ensure that the compensation is appropriate having regard to the award provisions which are satisfied by the payment of the annual salary.

17.3 Base rate of pay for employees on annual salary arrangements

For the purposes of the NES, the base rate of pay of an employee receiving an annual salary under this clause comprises the portion of the annual salary equivalent to the relevant rate of pay in clause 16—Minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.

The difficulties with annualised salary provisions such as that above is that the “guarantee” they offer with respect to not disadvantaging the worker are notoriously difficult to enforce where the employer has not properly document working hours or conduct the period reviews required by the clause. In addition, a compliant employer receives no reduction in the regulatory burden because they must maintain alternative records of what the employee would have been paid had the annualised salary not been instituted. Further, as noted above, if a worker is regularly engaged almost exclusively on penalty rate hours, as opposed to rostered over a number of different shifts some of which attract penalties of varying degrees and some which do not, an annualised salary is inappropriate.

Where modern awards do not specifically provide for an annual salary an employer will often enter into an off-setting arrangement with an employee that makes it clear that over-award payments are in satisfaction of all penalties, overtime payment, wages etc. due under the award.

As a general principle, over-award payments can only satisfy entitlements to which the payment is directed. For example, paying a higher hourly rate than the modern award rate of pay will not necessarily off-set penalties or loadings in the modern award, unless it is clear that the employer and employee intended it. This must be set out in the written contract of employment. The contract must be clear and identify what is offset and by what amounts. Also, the over-award payment must satisfy each of the entitlements which would otherwise have been payable to the employee over the salary period (for example annually).

Some employers and employees will have trouble working out whether they have entered into a fair bargain. For example not all industrial participants have perfect industrial literacy. An employer may attempt to pay a rolled-up rate to an employee and may inadvertently underpay him or her. An employee may agree to a rolled-up rate that does not adequately compensate him or her for the work done.