Economic impact of Fair Work Act


Economic impact of Fair Work Act

Just as the Fair Work Act is about to commence, there is conflicting data around on the extent of the economic downturn in Australia.


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Just as the Fair Work Act is about to commence, there is conflicting data around on the extent of the economic downturn in Australia.
The Act is unlikely to have much impact on large employers, but it could increase employment costs for many small businesses which operate close to the margins, according to an employer representative at the 2009 Australian Workplace Relations Summit, held in Sydney on 10–11 June 2009.
What does the data say about employment trends?
Gary Brack, chief executive of Employers First, made the following comments about the recent data which indicated that Australia had 'avoided a technical recession', at least for the time being:
  • While the data has led to some degree of increased optimism, which could encourage recovery through its psychological impact, this optimism has not yet been reflected in share price movements.
  • Government infrastructure spending has a lag time of about 18 months before it starts to have an impact.
  • The budget deficit of $57 billion will convert to $290 billion by the time all principal and interest is actually repaid.
  • Interest rates will have to increase because both the Government and private sector will be increasing their borrowings at the same time.
Brack then quoted the results of a recent Employers First survey of 350 employers, which basically indicated that cutbacks so far had been relatively minor.
Results were:
  • About one-third were still experiencing labour shortages, most often for skilled employees, compared to about two-thirds a year ago.
  • About 30% have reduced their workforce by up to 10%.
  • Almost half (44%) of redundancies were full-time employees, 34% were casuals, 8% were part-time, and 14% were contractors.
  • Most have not changed working hours, but 16% have reduced them and 2% have increased them. About one-quarter are expected to make changes within the next 3-6 months (12% to increase and 12% to decrease). 
  • The most likely area of employment to experience further decline will be casual employees.
  • Almost half (47%) were 'considering' making employment changes in response to economic pressures.
So overall, a 'wait-and-see' approach is still prevalent.
How business costs may increase
Brack’s opinion is that large businesses will not be affected much by the Fair Work Act, as they have well-established HR policies and practices and tend to pay well above minimum requirements. However, smaller employers, particularly in regional areas, tend to pay much closer to award rates, except in areas and occupations where there are labour shortages.
Brack contrasted the provisions in the Act that employees 'must not be worse off' with those that it was 'not intended that employer costs increase'. His opinion was that employer groups have been denied procedural fairness in this respect, but that appealing against this to the High Court would achieve nothing.
He sees the award modernisation process as increasing costs for these employers, because the overall reduction in the number of awards means that when two or more awards are merged into a single new one, the modern award will not be able to accommodate the different circumstances affecting different industries.
He offered the following examples:
  • The retail industry modern award originally included pharmacies, which have longer trading hours than shops and would have introduced higher penalty rates. There will now be a separate award for pharmacies.
  • Restaurants will now be removed from the hospitality award, as they earn about 70% of their revenue between the hours of 7pm and midnight.
  • The security industry modern award is currently based on a South Australian award, where pay rates are about 15% higher than in New South Wales.
  • Boat cruise operators are covered by widely different award provisions in each State. For example, the New South Wales award covers night cruises, but some other States do not.
  • Minister Gillard has sought the removal of exemption clauses, such as that in the Clerical (Private Sector) Modern Award, relating to the provision in States such as New South Wales that if the employee is paid more than 15% above the top pay rate in the award (eg is on a salary), many provisions such as overtime do not apply.
In general, where there is going to be one key award for an industry, the trend seems to be to adopt the provisions of the current State one that is most favourable to employees.
Although there will be a five-year transition period to phase in pay and cost increases, Bracks added that this will only help if the ultimate full cost is sustainable. In the meantime, there will be annual minimum wage reviews during the transition period.
Managing in a new environment
Another consequence of the economic downturn is that there are many managers who have never had to manage people and businesses in an economy which wasn’t continually growing. They have been able to solve most problems by simply offering extra money, but now will be unable to do so in a much tougher market.
AWAs had worked in the mining industry because that industry tended to provide much higher pay and benefits than average. Problems arose when they were used in other industries which operated much closer to minimum provisions, and some employees lost entitlements. Brack noted that although awards were intended to prescribe 'minimum rates', the increases described above would start to penetrate 'market rates' and reduce the degree of flexibility available to employers.
Further information
The conference was organised by Association and Communication Events. For further details, go to their website.
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