Modern awards - wages, classifications and allowances

Analysis

Modern awards - wages, classifications and allowances

The modernised award system will apply from 1 January 2010. This article looks at the wage and classification structure under modern awards, the new ‘standard’ casual loading and the new method for calculating monetary allowances in modern awards.

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The modernised award system will apply from 1 January 2010. This article looks at the wage and classification structure under modern awards, the new ‘standard’ casual loading and the new method for calculating monetary allowances in modern awards.

The article also identifies the differences between the current employee entitlements and those proposed under modern awards.

The Australian Industrial Relations Commission (AIRC) recently issued a Statement on Award Modernisation providing ‘exposure drafts’ on 14 proposed modern awards under Stage 1 of the award modernisation process.

A previous article identified the modern awards which comprise State 1 of the process, the rationalisation of current awards in terms of coverage and the type of employment conditions that may be affected by a ‘flexibility’ clause.

Wage rates and classification structure

The minimum wages in the draft modern awards include the pay increases in the Australian Pay and Classification Scales (APCS) that are operative as a consequence of the most recent decision of the Australian Fair Pay Commission (AFPC) operative from October 2008. Minimum wages will require minimum further adjustment should there be a general increase as expected in pay scales before 1 January 2010.

The classification structure under some draft modern awards is similar to the current structure in the APCS. This may be because a particular pre-reform federal industry or occupation award has been used as the ‘template’ for a modern award. For example, the exposure draft of the Manufacturing & Associated Industries & Occupations Award contains a classification structure that appears similar to the current APCS under the pre-reform award Metal, Engineering & Associated Industries Award, ie 16 classification levels from Level C14 through to Level C1(a), covering employees from unskilled process workers up to employees such as professional scientists and professional engineers.

Under the draft Manufacturing & Associated Industries & Occupations Award, the impact on an employer of an employee being 'reclassified', resulting in a different minimum wage, may not be great because the majority of industries being absorbed into this Award were previously covered by a classification structure common to many pre-reform federal awards in the manufacturing sector. However, other modern awards absorbing disparate industries or occupations with little historical connection, particularly with respect to NAPSAs, may create difficulties for employers when implementing any new classification structure.

Anomalies and possible solutions

Creating a new wage and classification structure in modern awards will create anomalies in some instances. The AIRC is contemplating how to phase-in these changes to award rates and classification structures without unnecessary disadvantage to employees or increased costs to employers.

From an employer’s perspective, difficulties will arise where the award rate under a classification in a modern award is higher than the current APCS rate. In this circumstance, employers are advocating a process whereby an employer increases the existing award rate annually (say 5%) until the minimum rate attains the modern award rate. Conversely, where the current APCS wage rate is greater than the applicable rate under a modern award, an employer may be able to absorb future increases until the modern award wage rate reaches the previous APCS wage rate.

Where an employer is engaged in more than one industry to which an industry award applies, an employee of that employer will be deemed to be in the classification that is most appropriate to the work performed by the employee and to the environment in which the employee normally performs the work, regardless of the industry award in which the classification appears.

Annualised wage and salary arrangements

The AIRC decided that annualised wage and salary arrangements provisions should not be included in modern awards as a matter of course. This may differ where there are similar arrangements in a relevant pre-reform federal award or NAPSA or there is consensus among the relevant parties. Most of the exposure drafts of modern awards in Stage 1 do not contain such arrangements.

Casual loading

The draft modern awards prescribe a ‘standard’ casual loading of 25%. This is greater than the ‘default’ casual loading of 20% currently provided under WorkChoices.

The casual loading of 25% proposed in modern awards reflects the loading determined some years ago by the AIRC in a test case relating to pre-WorkChoices federal awards. However, in some instances, such as the exposure draft of the Textile, Clothing, Footwear and Associated Industries Award, the casual loading is lower than currently provided under the Clothing Trades Award (a pre-reform federal award), which prescribes a casual loading of 33 1/3%.

Variations in the applicable casual loading will be common when modern awards become operative, particularly as many NAPSAs currently provide a casual loading of 20% or less. In some areas, transitional arrangements may be necessary to cushion the impact of the change.

Allowances

Clause 27 of the Minister’s request requires the AIRC to include an appropriate method or formula for automatically adjusting relevant allowances when minimum wages are adjusted.

The AIRC proposed that all allowances, including those that relate to reimbursement of expenses, should be expressed as a percentage of the key classification rate, which is referred to in a modern award as the ‘standard’ rate.

This differs from previous award systems, which usually expressed allowances as a specified monetary amount payable per week, per hour or per occasion. Expressing allowances in this manner means the amount for an allowance in a modern award will automatically increase when the ‘standard’ wage rate in the modern award is increased annually by the Australian Fair Pay Commission (or its successor). For example, the Manufacturing & Associated Industries & Occupations Award provides a ‘leading hand employee in charge of 310 employees’ to be paid 166.3% per week of the ‘standard rate’, defined in the Award as Wage Level C10 (presumably the current hourly rate of $16.78). This would equate to an amount of $27.90 per week.

Oddly, this method of calculating allowances by a percentage of a standard rate also applies to reimbursement allowances, the nature of these type of allowances are usually related to the reimbursement of the cost of the relevant expense incurred by the employee during the course of their work.

A modern award may also express an allowance as ‘payable for all purposes of the award’, meaning the allowance is usually payable during periods of paid leave under the award, such as annual leave, personal/carer’s leave, public holidays, as well as being included in any calculation of penalty rates, such as overtime. This is also a common provision in pre-reform federal awards and NAPSAs.

Unresolved issue

The AIRC has indicated there is an unresolved issue with respect to allowances variously described as district, locality or remote area. At this stage, these types of allowances have not been included in the exposure drafts of the modern awards involved in Stage 1.


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