Simplified wage payment rules will benefit employers

Analysis

Simplified wage payment rules will benefit employers

The Fair Work Commission has issued a decision that will lead to changes in the timing and manner in which certain award covered employees are paid, in addition to removing generous annual leave loading entitlements and penalties for the late payment of wages upon termination.

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As part of its four-yearly review into modern awards, the Fair Work Commission has issued a decision that will lead to changes in the timing and manner in which certain award covered employees are paid, in addition to removing generous annual leave loading entitlements and penalties for the late payment of wages upon termination.

This decision clarifies and simplifies a number of long standing inconsistencies between modern awards in relation to the payment of wages both during employment and upon termination.

Timing of payment of wages for award covered employees


In considering an application to vary three modern awards to require that all wages be paid on a regular payday within four days of the end of the pay period, the Commission undertook a broader consideration of the varying payment arrangements across multiple modern awards.

The Commission noted that there were significant variations in modern award payment provisions and that it was not apparent that these variations were “justified” when considering the modern award objective to ensure a simple, easy to understand, stable and sustainable modern award system.

The Commission confirmed that, in its view, there was “utility” in establishing a model clause to cover the ‘payment of wages and other amounts’.

The model payment of wages clause proposed by the Commission will provide that:
  • An employer must pay its employees by no later than seven days after the end of each pay period
  • Payment periods are either 
    • weekly 
    • fortnightly; or monthly
  • Employees must be notified in writing of their pay day pay period.
The model clause also provides for employees to receive four weeks’ notice in writing of any changes to their pay period and that an employer can only change from weekly or fortnightly pay period to a monthly pay period by agreement with affected employees.

Where the pay period is monthly, employees must be paid two weeks in advance and two weeks in arrears, and finally, all payments must be made by cash, cheque or by electronic funds transfer (EFT).

Timing of payment on termination of employment


In order to simplify the considerable variations between modern awards relating to the payment of a termination payment upon the end of employment the Commission has also proposed a ‘payment on termination of employment’ model clause. 

This model clause will be dealt with on a case by case basis as the Commission accepted that there may be sound, industry-specific reasons for departing from the model term in a particular modern award.

The model payment of wages on termination clause will provide that an employer must pay an employee’s wages and all other amounts due under the NES no later than 7 days after the employee’s last day of employment.

This will be subject to sections 117(2) and 120 of the Fair Work Act 2009 (the Act).

Section 117(2) of the Act provides that an employer must not terminate an employee’s employment unless the employer has given the employee the required minimum period of notice or “has paid” to the employee payment in lieu of notice.

Section 120 of the Act provides that in some circumstances an employer can apply to the Commission to reduce the amount of redundancy pay an employee is entitled to under the NES.

The Commission noted that, in dealing with an application under section 120, the Commission could order a delay to the requirement to make a termination payment until after the Commission makes a decision on the application under this section.

Penalty for late payment of wages


Employer groups had previously sought to vary 10 modern awards which currently provide for a penalty to be imposed where wages are paid late.

The Commission accepted that late payment penalties were not appropriate where employees are paid via EFT and that this was markedly different to a situation where an employee is required to physically wait at the workplace to receive a payment (which will continue to attract a penalty).

The following awards are proposed to be varied to remove the imposition of a penalty where wages payments are made by EFT:
  • Cleaning Services Award 2010;
  • Hospitality Industry (General) Award 2010;
  • Plumbing and Fire Sprinklers Award 2010;
  • Professional Diving Industry (Industrial) Award 2010;
  • Professional Diving Industry (Recreational) Award 2010;
  • Racing Industry Ground Maintenance Award 2010;
  • Registered and Licensed Clubs Award 2010;
  • Silviculture Award 2010; and 
  • Supported Employment Services Award 2010.

Annual leave loading issue


Employer groups had also sought to vary the Electrical, Electronic and Communications Contracting Award 2010, the Food, Beverage and Tobacco Manufacturing Award 2010 and the Joinery and Building Trades Award 2010 to address an anomaly in the annual leave clauses which dealt with payment of annual leave and annual leave loading.

Ai Group argued that these clauses could be interpreted as entitling employees to:
  • payment of both the relevant shift loading and an additional leave loading, or
  • payment of shift loadings twice when an employee receives annual leave entitlements.
The Commission agreed and noted that “the provision of an annual leave payment which included both a shift penalty and a 17.5 per cent loading is unusual” and not a feature of other construction awards. 

The Commission proposed to vary the three awards to ensure that employees do not receive both a shift loading and an annual leave loading during a period of annual leave. Instead, employees will receive whichever is greater. 

Significance for employers


When implemented, these proposed changes will lead to more harmonised arrangements for the payment of wages and termination payments for award covered employees.

For employers managing multiple modern awards across their workforce, these changes will lessen the administrative burden of applying differing award provisions to groups of employees within the one organisation.

The changes will provide clarity to both employers and employees alike. For employers, their obligations in relation to the payment of wages will be easier to understand and able to be more consistently applied across their business, particularly where there are multiple awards in place.

In addition, terms that were unduly burdensome (penalty for late payment of wages) and unfair (annual leave payment with both loading and shift penalty included) will be removed.

Next steps


Submissions were sought in the run-up to the Christmas break. Submissions-in-response can be filed until 2 February 2017. The matter is set down for further hearing on 8 February 2017.
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