Paying over the award — and absorbing award increases — battle looms

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Paying over the award — and absorbing award increases — battle looms

Major employer groups and the Fair Work Ombudsman are on a collision course over the right of employers making overaward payments to employees to absorb increases in minimum award rates.

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Major employer groups and the Fair Work Ombudsman are on a collision course over the right of employers making overaward payments to employees to absorb increases in minimum award rates.
 
The Ombudsman is insisting that individual agreements with employees receiving overaward payments need to be processed before an employer can absorb wage increases to applicable awards.
 
Employers insist that this is complex and costly for business to implement.
 
Ombudsman’s position
 
On 1 June 2010, the FWO released a Guidance Note that details its interpretation of how pay rates in modern awards will be phased in.
 
The Ombudsman has indicated that a specific arrangement is required to be made between an employer and an employee to absorb award increases into overaward payments, and that unless such an arrangement is in place an employer cannot assume that there is a right to absorb:
‘As a general principle, over-award payments can only satisfy entitlements to which the payment is directed.
 
This means, for example, that paying a higher wage rate than the award minimum does not offset penalties or loadings in the award unless it is clear that the parties intended to do so (and in fact, the amount satisfies the entitlements that would otherwise be payable to the employee).
 
If an employer has properly entered into an offsetting arrangement that makes it clear that over-award payments are in satisfaction of all penalties, wages etc due under the award, that arrangement can continue to be relied upon to satisfy increases that arise as a result of the commencement of modern awards. In addition, employers can agree with their employees to enter into such an arrangement.’
Details of the Ombudsman’s position are available online.
 
NSW Business Chamber takes cautionary approach
 
The NSW Business Chamber has suggested that its members document overaward arrangements:
‘The NSW Business Chamber advises members to document arrangements with employees to absorb any increases into existing over award payments that arise from the award modernisation process or the minimum wage review.
 
Employers can also agree with their employees to enter into such an arrangement with respect to future payments, such as future increases to the national minimum wage.
 
It is important that where entitlements have been absorbed into above award payments, the entitlements being absorbed are identified on payslips and time and wages records.’
Ai Group alarmed
 
‘The Guidance Note released today by the Fair Work Ombudsman (FWO) adopts an interpretation on the transitional provisions in modern awards which is alarming,’ Ai Group chief executive Heather Ridout said.
 
‘In Ai Group’s view the clause means that so long as an employer is paying its employees at least the total amount that they are entitled to be paid under the relevant modern award, the employer does not need to pay more.’
 
‘The FWO’s interpretation would require an employer to obtain the agreement of each individual employee before it could absorb any additional costs arising under modern awards into over-award payments. In Ai Group’s view such an approach is unworkable and would result in an unfair, costly and complex burden being imposed on business.’
 
‘To suggest that employers will be able to readily reach agreement with each employee on the absorption of award changes into over-award payments reflects a lack of understanding of many workplaces, including the communication challenges and the role of unions in seeking to maximise wages and working conditions.’
 
‘This issue will be extremely important from 1 July 2010 when the phasing-in of higher and lower wage rates, penalties and loadings under modern awards commences.’
 
‘Over the next few days, Ai Group intends to make an application to Fair Work Australia to vary the absorption clause in modern awards to clarify its meaning’, Ridout said.
 
Fair Work Australia — 2009 decision
 
FWA has supported absorption as a reasonable approach in its September 2009 decision.
 
The relevant extract is:
‘We deal first with the issue of absorption. There was a range of views on the issue. Most employer representatives took the view that any increases resulting from a modern award should be capable of absorption into existing overaward payments. The Australian Council of Trade Unions (ACTU) and most unions took a contrary view. They argued that overaward payments should be maintained in all circumstances. Modern awards are concerned with minimum wages and conditions and not with overaward payments. It would not be appropriate, even on a transitional basis, to require an employer to maintain overaward payments.
 
We have decided to provide for absorption.
 
Of course the payments specifically regulated in the transitional provisions are not to be regarded as overaward payments. Those payments are referable to pre-modernisation obligations in award- or agreement-based transitional instruments. The model provisions will include the following:
“The monetary obligations imposed on employers by this award may be absorbed into overaward payments. Nothing in this award requires an employer to maintain or increase any overaward payment.”’
AiG has drawn attention to the adoption of this clause by FWA in modern awards to reinforce their argument.
 
The question is likely to be resolved in a case in the tribunal soon.
 
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