Modern award transitional provisions: be ready for 1 July

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Modern award transitional provisions: be ready for 1 July

Employers need to check that they are in compliance with both modern award transitional provisions and the Minimum Wage Panel’s first national minimum wage decision, both of which either commence or start phasing in on 1 July 2010.

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Employers need to check that they are in compliance with both modern award transitional provisions and the Minimum Wage Panel’s first national minimum wage decision, both of which either commence or start phasing-in on 1 July 2010.
 
Key points of both events were explained at a seminar conducted by the Australian Human Resources Institute (AHRI), in Sydney, on 23 June 2010.
 
 
Transitional provisions for awards
 
Mark Sullivan, partner workplace relations and safety at Lander & Rogers Lawyers, said that particular care was needed in relation to calculations of overtime, phased-in pay rates, loadings and penalties, and over-award payments.
 
These issues apply where an employer has employees under what he called ‘pre-modern award entitlements’. Modern awards commenced on 1 July 2010, but there are phasing-in provisions that in some cases will apply progressively until 1 July 2014.
 
Most modern awards contain a model transitional provisions clause, drafted by the former Australian Industrial Relations Commission. The Fair Work Ombudsman has issued guidance notes that interpret those provisions.
 
Overtime
 
Phasing-in arrangements apply to minimum wages, casual and part-time loadings, penalty rates and shift allowances, but, not overtime.
 
The Fair Work Ombudsman considers that overtime is not currently regarded as a penalty rate under the Model Transitional Provision and, so, is not subject to phasing-in. On this basis, overtime provisions in modern awards commenced to operate from 1 January 2010. The Fair Work Ombudsman explains that view in Guidance Note 7, noting in particular that overtime and penalty rates are treated separately elsewhere in the Fair Work Act 2009.
 
This interpretation has been confirmed by Fair Work Australia. 
 
Phasing-in schedule for pay rates
 
If an employee’s wage rate under his/her pre-modern award provisions is lower than the applicable rate under the modern award, the catch-up will be phased in by 20% on each 1 July until 2014. However, this becomes complicated because national wage decisions during that period will increase the modern award rate. It is necessary to study the award’s classifications, then apply them to the pre-modern award provision, to calculate the transitional rates. See: Phasing-in wage rates, loadings and penalties.
 
Example
 
Luke was paid $16 per hour under his previous award, but the rate under his modern award was $18 as at 1 January 2010, which the 2010 National Minimum Wage decision increased to $18.25 on 1 July 2010. The original difference in rates was $2. Therefore, in 2010–11, deduct 80% of $2 ($1.60) from the new rate of $18.25, which gives a rate of $16.65. Another decision increases the modern award rate to $18.45 from 1 July 2011. From this date, deduct 60% of $2 ($1.20) from $18.45, giving a rate of $17.25. The deductions are 40% of $2 in 2012–03, 20% in 2013–04, until Luke is paid the full modern award rate as from 1 July 2014.
 
This example is sourced from the Fair Work Ombudsman Guidance Note 7.
Transitional loadings and penalties
 
The principles for transitional calculations of loadings and penalty rates are similar to those for pay rates above, but there is the additional need to determine whether a new loading/penalty rate is ‘equivalent’ to a pre-modern award one. The Fair Work Ombudsman appears to be taking a narrow approach to interpreting this issue. Basically, if the provision is for the same purpose (eg shift work loading), same time periods (eg night shift) and applies in the same manner (eg same length of pay period, and is a loading on the same pay component such as the ordinary rate), it will be equivalent. If any one of those three is different, however, it will probably not be equivalent.
 
If the old and new provisions are for something equivalent, a similar phasing-in period until 2014 applies, ie 20% catch-up or deduction per year. If they are not equivalent, the old provision phases out at the rate of 20% per year until 2014, while the new provision simultaneously phases in at 20% per year.
Example
 
Chloe was paid a loading of 50% for weekend work under her pre-modern award provision but her modern award instead provides a loading of 25% for all shifts not in normal weekday daytime hours, which is different from weekends-only. For this reason, the loadings are not ‘equivalent’. In 2010–11 she is paid 80% of the old loading (40%) plus 20% of the new one (5%). In 2011–02, the rates are 60% of the old loading (30%) plus 40% of the new one (10%). Therefore, new calculations must be made each 1 July until 2014, when only the new provision will apply.
Overaward payments
 
The current Fair Work Ombudsman interpretation is that overaward payments that applied under a pre-modern award provision cannot be used to comply with other obligations such as penalty payments, unless there is a contractual provision that expressly states that it is possible to do so.
 
The Ai Group sought a more specific ruling allowing remuneration to be offset, which the ACTU opposed. Fair Work Australia has ruled that the Ombudsman is essentially correct. 
 
A possible option for employers is to negotiate new employment contracts that contain specific set-off clauses.
 
Take-home pay orders
 
The basic philosophy of take-home pay orders is that no employee should be worse off overall under the Fair Work Act, so it is possible to seek an order from Fair Work Australia. Only one order has been issued so far: Wright v Kilmore Racing Club [2010] FWA 4359
 
A dilemma can arise where an employee’s modern award entitlement is lower than his/her previous entitlement, which conflicts with that philosophy. A possible solution is to maintain the old provision until the modern award provision catches up to it, but it is necessary to check relevant contractual provisions to establish the legality of such an action.
 
Comments on 2010 national wage decision
 
Neil Napper, partner workplace relations and sSafety at Lander & Rogers, described the Minimum Wage Panel’s first decision as awarding an increase that was larger than generally expected, but added that a substantial increase was not surprising given that it was the first national wage increase since October 2008. The former Australian Fair Pay Commission declined to award any increase in its 2009 decision.
 
Napper added that it was important to study the latest decision closely, because it was the first indicator of how the Panel will interpret its obligations under the Fair Work Act, and how it is likely to influence future decisions.
 
The latest decision, which applies to the first pay period commencing after 1 July 2010, is explained in detail by WorkplaceInfo
 
Napper also made the following comments about the decision:
  • It applies to most transitional instruments, with the exception of state awards covered by Div 2B of the Fair Work Act unless the latter are enterprise awards. The logic here is that state tribunals are likely to have already awarded their own pay increases.
  • There is no change to the standard casual loading rate in awards, but loadings for non-award employees will increase in instalments of 1% per year until they reach 25%. The rate from 1 July 2010 will be 21%.
  • The Panel said that over the past decade, real growth in minimum wage rates was only around 2%, yet productivity levels over the same period increased by an estimated 16% to 20%.
  • The Panel preferred a flat rate increase to a percentage increase, because it would be of greater benefit to low-paid employees. However, a percentage increase may be more likely in the 2011 decision, to avoid further compression of pay rates. In the meantime, the Panel has indicated further research into this issue is necessary.
  • When applying the better off overall test to enterprise agreements after 1 July 2010, employers must use the new rates of pay.
 
Further information
 
Further information about this seminar is available from AHRI.
 
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