The meaning of ‘ordinary pay’: Part 2

Analysis

The meaning of ‘ordinary pay’: Part 2

This second article in a two-part series on the meaning of ‘ordinary pay’ provides an explanation of its meaning in the context of industrial instruments, such as modern awards and enterprise agreements, and in respect to other employment-related legislation.

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This second article in a two-part series on the meaning of ‘ordinary pay’ provides an explanation of its meaning in the context of industrial instruments, such as modern awards and enterprise agreements, and in respect to other employment-related legislation.
 
The first article explained the meaning of this term under the Fair Work Act 2009.
 
Modern awards

Where a modern award applies to an employee, the employer should check the award to determine whether the definition of ‘ordinary pay’ for a form of paid leave is more beneficial than the definition under the NES. This is particularly the case with respect to paid annual leave, jury service and redundancy pay (where the employee was previously covered under a NAPSA). An employer who fails to pay an employee the ordinary pay as required by the relevant modern award would be in breach of the Fair Work Act and liable for any underpayment of wages and possible penalty.

Annual leave

For the purpose of payment for a period of annual leave, some modern awards provide a more beneficial definition of ordinary pay than the NES.
Example
 
Clause 41.4 of the Manufacturing and Associated Industries and Occupations Award 2010 states that instead of the base rate of pay under the NES, an employee must be paid the wages they would have received in respect of the ordinary hours the employee would have worked had the employee not been absent on annual leave. Wages are worked on the basis of including allowances (eg leading hand allowance, qualification allowance (but excluding reimbursements and special rates), loadings and penalties paid for all purposes of the Award (excluding overtime), first-aid allowance), and any other payments payable under the employee’s contract of employment, including over award payments.
Other modern awards that provide a more beneficial definition of ‘ordinary pay’ for a period of annual leave than the NES include:
Note: the more beneficial entitlement to ordinary pay for a period of annual leave is not a ‘standard’ provision in modern awards. In the absence of a specific definition of ordinary pay for annual leave in the relevant modern award, the employee will receive their base rate of pay as defined under the NES.
 
Annual leave loading
 
In addition to an employee’s ordinary rate of pay payable during a period of annual leave, a modern award will usually provide an annual leave loading of either 17½ per cent of the relevant award wage rate (for a day worker), or (in the case of a shift worker) the appropriate shift loading and/or weekend penalties, whichever is the greater, Annual leave loading is a provision of a modern award and is not a minimum entitlement under the NES.
 
All-purpose rate
 
A modern award may provide that a particular allowance is payable ‘for all purposes of the award’. This means the allowance is to be included in any calculation under the modern award that relates to the employee’s ordinary pay, such as of overtime or penalty rates. An example of allowances described as ‘all purpose’ can be found in cl32 of the Manufacturing and Associated Industries and Occupations Award 2010.
 
Redundancy pay — Notional Agreement Preserving State Awards (NAPSA)
 
While redundancy pay under the NES is payable at the employee’s base rate of pay, a modern award may contain a ‘transitional arrangements’ clause that continues to recognise the more beneficial entitlements previously provided under an applicable NAPSA.
Example
 
The Clerks — Private Sector Award 2010 provides that an entitlement to redundancy pay under the terms of a previously applicable NAPSA will apply where the employee would have been entitled to redundancy pay in excess of the employee’s entitlement to redundancy pay under the NES.
The Clerical and Administrative Employees (State) Award (a previous NSW NAPSA) defines a week’s pay for redundancy pay purposes to include over award payments, shift penalties and allowances provided by the NAPSA. The scale of redundancy pay is also more beneficial for certain periods of continuous service, particularly for service in excess of 12 years with the employer.
 
Jury service — community service leave
 
A modern award may provide for a more beneficial entitlement than the NES regarding make-up pay relating to jury service.
Example
 
Clause 43 of the Manufacturing and Associated Industries and Occupations Award 2010 states that an employee on jury service is to receive the difference between the jury service fee and the wages he or she would have received in respect of their ordinary hours of work had the employee not been on jury service. The provision is also uncapped and applies to the total period an employee is absent from work on jury service. Under the NES, make-up pay is the difference between the employee’s jury service fee and their base rate of pay, while the entitlement is also capped at 10 days jury service. 
Note: the more beneficial entitlement for jury service make-up pay is not a ‘standard’ clause in modern awards. Reference, therefore, should be made to the applicable modern award to determine an employee’s entitlement in respect to jury service pay.
 
Casual loading
 
Most modern awards provide that a casual loading is payable to a casual employee, the ‘standard’ loading being 25 per cent (subject to the transitional provisions of the modern award). The majority of modern awards also provide for overtime and penalty rates. In the absence of a specific provision to the contrary in the applicable modern award, as a general rule, the penalty and the casual loading are both to be calculated separately on the casual employee’s ordinary hourly rate (ie excluding the casual loading). 
Example 
 
An award provision that overrides this general rule can be found in cl14.1 of the Manufacturing and Associated Industries and Occupations Award 2010, which states the casual loading constitutes part of the casual employee’s all-purpose rate (ie penalty rates are calculated on the casual employee’s ordinary rate, inclusive of the casual loading).
Long service leave
 
The definition of ordinary pay, for the purposes of payment for a period of long service leave, is determined by the applicable state or territory long service leave statute or, where applicable, an award-derived long service leave entitlement under the NES. Generally, ordinary pay is the employee’s current weekly rate of pay, or an average of the weekly pay over a specified period (commonly five years), whichever is the greater.
 
Payments usually included in ordinary pay when taking long service leave include over-award payments, work-related allowances (eg leading hand, qualification allowance, casual loading and, incentive-based payments and bonuses). Amounts generally excluded include shift penalty, overtime and reimbursement allowances.
 
Superannuation Guarantee
 
The superannuation guarantee (SG) legislation provides a definition of Ordinary Time Earnings (OTE) which applies consequent to the commencement of the ATO’s SG Ruling 2009/2, operative from 1 July 2009. This Ruling provides the only definition of OTE for the purposes of calculating employer superannuation contributions with respect to employees under a modern award or an enterprise agreement.
 
An employee with a definition of OTE under their individual contract of employment that provides a more beneficial outcome with respect to employer superannuation contributions will prevail over the SG Ruling. The Ruling replaces previous superannuation guarantee rulings SGR 94/4 and SGR 94/5.
 
The table of payments is as follows:
Amounts INCLUDED 
 
Over award payments; shift loadings; commission payments; allowances or loadings related to an employee’s work (eg casual loading, site allowance, dirt allowance, freezer allowance, danger allowance, retention allowance, etc); bonuses related to ordinary hours of work (eg performance bonus, bonus labelled as ‘ex-gratia’ but in respect of ordinary hours of work, Christmas bonus); piece rates; paid leave and holiday pay; lump sum arrears payments of unused leave or salary and wages (other than on termination); payments in lieu of notice; workers compensation (returned to work); directors’ fees.

Amounts EXCLUDED
 
Overtime payments; lump sum payments on termination (eg payment in lieu of unused sick leave, annual leave or long service leave payments); on call or availability allowance (except doctors); paid parental leave or other kinds of ancillary leave; leave loadings; ‘top up’ payments (eg jury service payments, defence reserve forces); private or domestic work under 30 hours per week; fringe benefits and other non-cash payments; some workers compensation payments (not working); expense allowance payments and reimbursement of expenses incurred by the employee; redundancy payments; payments for unfair dismissal.
 
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