Exemptions from modern awards

Analysis

Exemptions from modern awards

Exemption from certain provisions of modern awards is still possible under the coming modern award system. The extent of the exemptions is still being refined.

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Exemption from certain provisions of modern awards is still possible under the coming modern award system. The extent of the exemptions is still being refined.
 
On 7 May 2009, the Minister for Employment and Workplace Relations wrote to the President of the Australian Industrial Relations Commission (AIRC) varying the award modernisation request on a number of matters. The specific matters included equal remuneration, award exemption clauses, individual flexibility terms, supplementation of the National Employment Standards (NES), the exclusion of the NES — redundancy, piece worker rates of pay, and franchise awards.
 
Section 576C(4) of the Workplace Relations Act (WRAct) provides that the Minister may, by written instrument, vary or revoke an award modernisation request. One of the changes requested by the Minister relates to the deletion of exemption clauses contained in modern awards.
 
Exemption clauses
 
An exemption clause usually provides that an employee whose ordinary weekly wage exceeds a specified percentage (usually 15 per cent) above the classification prescribing the highest award wage, is exempt from certain provisions of the award.
 
Exemptions clauses in awards pre-date the WorkChoices regime. While not common, some important ‘generalist’ awards have contained such a clause, although mainly in awards covering the white collar sector such as clerical and administrative employees, and insurance and finance industry employees.
 
The only entitlements which continued to apply to ‘exempt’ employees included Sundays and public holidays clause, annual leave, personal/carer’s leave, anti-discrimination, compassionate leave, jury service, superannuation, and salary packaging provisions.
 
The exemption rate is usually in recognition of a level of over-award payment which compensated for the non-payment of award entitlements, such as overtime and shift penalties, as well as weekend and public holiday penalty rates.
 
The Minister’s request
 
The Minister’s request now reflects the Government’s intention that the creation of modern awards should not exempt, or have the effect of exempting from the safety net provided by modern awards, employees other than those expressly listed in the request.
 
Employees who are not 'high income employees', ie. earning in excess of $100,000 p.a., should be protected by a safety net of basic entitlements unless there is a history of exempting employees across a wide range of pre-reform awards and NAPSAs in the relevant industry or occupation.
 
Clerical and other awards
 
The request referred to the Clerks — Private Sector Award 2010 as an example of an exemption clause that should be deleted.
 
The Government considers that this award should not seek to exclude basic award conditions for employees who should be protected by the safety net, ie. both modern awards and NES, given that there is not a history of exemption from these provisions in a wide range of awards and NAPSAs.
 
An exemption clause is also contained in the Banking, Finance and Insurance Award 2010 which, it is presumed, will similarly be varied as a consequence of the Minister’s request. An exemption clause is currently contained in the pre-reform federal award covering managers of travel agencies.
 
The removal of this clause may result in an increase in the cost of employing a person whose ordinary wage exceeds the current exemption figure, due to the re-introduction of conditions of employment with a monetary impact on an employee’s overall take-home pay.
 
This may result in a gradual reduction in an employee’s over-award payment through the absorption of future ‘national minimum wage order’ increases which will be handed down by the ‘minimum wages panel’ under the auspices of Fair Work Australia (FWA).
 
The current economic climate may force employers to consider absorbing future pay increases in any case through a ‘pay freeze’, in order to protect existing jobs within their company.
 
Modern awards & exemption provisions
 
As mentioned in the Minister’s request, the Clerical — Private Sector Award 2010 issued by the AIRC in December 2008 contains an exemption clause. Clause 16 of the Award currently prescribes that certain provisions of the Award will not apply to employees employed by the week who are in receipt of a weekly wage in excess of 15 per cent above the Level 5 wage rate (the exemption rate equates to $851.00 per week), provided the wage is not inclusive of overtime payments and/or shift allowances due to the employee under this Award.
 
The provisions of the Award which would continue to apply to an employee receiving a wage in excess of the exemption rate include: redundancy; superannuation; annual leave; personal/carer’s leave; public holidays; and community service leave. The Minister’s request seeks to have this clause deleted from all modern awards.
 
Absorption of over-award payments
 
Currently, the Australian Fair Pay Commission (AFPC) increases the minimum rates of pay for pre-reform federal awards, NAPSAs, and the Federal Minimum Wage each year, usually from October.
 
Employers often enquire as to whether any current over-award payments being paid to employees can be absorbed whenever an AFPC across-the-board decision is handed down. Because the AFPC only sets ‘minimum’ rates of pay, any increase may be absorbed into any existing over-award payments being paid to an employee. The decision on whether to pass on an AFPC wage increase is at the employer’s discretion. It is presumed the ‘Minimum Wages Panel’, to be created under the Fair Work system, will continue the current practice of allowing the absorption of any wage increase with respect to an existing over-award payment.
 
When absorbing a wage increase, an employer should ensure that the current level of over-award payment more than compensates for the working of overtime or weekend or public holiday work which may have been taken into account when determining an employee’s level of over-award payment.
 
Source: Paul Munro, IR Consultant.
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