Penalty rate changes: What employers need to know

Cuts to public holiday penalty rates start from 1 July 2017 along with new rates for evening and after midnight work in the restaurant and fast food awards.

But the changes to Sunday penalty rates, announced in a Fair Work Commission decision in February this year will be phased in over three or four years starting on 1 July 2017.

What are the new rates?

From 1 July 2017, public holiday penalties for workers under the retail, fast food, pharmacy, restaurant and hospitality awards will drop from double time and a half (250%) to double time and a quarter (225%) for full-time and part-time employees. Casuals will see a cut from double time and three quarters (275%) to double time and a half (250%) except for those employed in restaurants where the casual public holiday penalty will remain as 250%. In the fast food sector, the changes to penalty rates apply only to level one workers.

Restaurant employees will also see a slight cut in the 15% after midnight penalty, which will apply to hours worked between midnight and 6am (instead of 7am).

What’s happening to Sunday rates?

The Fair Work Commission announced in June different periods for introducing the new Sunday penalty rates.

  • In the Fast Food Award, the changes will be phased in over three years for all employees
  • In the Retail Award, the changes will be phased in over four years for full-time and part-time employees and over three years for casual employees
  • In the Hospitality Award, the changes will be phased in over three years for full-time and part-time employees (there are no Sunday changes for casual employees)
  • In the Pharmacy Award, the changes will be phased in over four years for all employees.
  • There are no changes to Sunday rates for the Restaurant Award.

The new Sunday rates, detailed in the Commission’s February decision, differ for each industry. Casuals employed in the hospitality sector are not affected by the cuts. Their Sunday penalty rate will remain at 175% while full-time and part-time employees in the hospitality sector will see a cut from 175% to 150%.

The Commission is also reviewing the Registered and Licensed Clubs Award and the Hair and Beauty Industry Award but hasn’t made any changes at this stage.

Review your payroll

In the meantime, employers looking to prepare for the new rates need to carefully review their current payment rates and agreements, advises workplace lawyer Charles Power from Holding Redlich.

There are some workplace arrangements that affect how penalty rates and allowances are paid, according to the Fair Work Ombudsman, including salary payments, employment contracts, individual flexibility agreements and a guarantee of annual earnings. The wages paid under these arrangements must offset other penalties and loadings in awards. In other words, an employee must receive at least the same amount under these arrangements as they would under their award.

“The penalty rates decision doesn’t necessarily give employers the right to vary the agreed rate without the agreement of the employee,” says Power.

For example, employers paying more than the award rate can’t rely on the ruling to reduce the amount they pay.

“If you pay your employees a loaded rate already – an hourly or weekly rate that’s above the award – any reduction in public holiday or Sunday penalties can’t be just flowed on to the loaded-up rate. You have a contract with them – whether or not it’s written – and a contract can only be varied by agreement,”  says Power.

Keep good records and communicate

Power recommends keeping good records of any changes you make as mistakes can happen.

If that’s the case, the best way to fix it usually starts with talking to your employee about what you plan to do, says the Fair Work Ombudsman.

A number of smaller employers say they won’t be cutting penalty rates including the retailer Lush Australia, which posted on its Facebook page shortly after the February decision that none of its employees would be “adversely affected”.

The Fair Work Ombudsman recommends that employers regularly audit their payroll to keep up to date with any changes in minimum wages and conditions as well as changes in employees’ roles and responsibilities.

Both the Federal Opposition and the Australian Greens have introduced private members bills to try to prevent the cuts to penalty rates.

Check the Fair Work Ombudsman’s pay calculator and pay guides to make sure your pay rates are up to date.

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