Your Employment Obligations

Employment law in Australia is best thought of as a pyramid. The Fair Work Act 2009 (Cth) (the FWA) specifies the minimum standards that apply to all employees in the private sector. Certain industries and occupations are also covered by a Modern Award (or your organisation may have an Enterprise Agreement- also known as an EBA).  Sitting on top of this is an employee’s contract.

Ultimately whilst a Modern Award, Enterprise Agreement or an employee’s contract can build on the FWA, it cannot offer any terms or conditions that undermine or are less favourable than an employee is entitled to at law.

In this section we examine the role of Modern Awards, why and when they become relevant and additional obligations employers should be mindful of.

Why do Modern Awards exist?

The Fair Work Act 2009 (Cth) (FWA) contains 10 ‘National Employment Standards’ (the NES) that set the minimum terms and conditions for employment in Australia. Combined with the federal minimum wage, the NES form a safety net of employment entitlements. No employer in Australia can offer employment on terms and conditions less favourable than the NES or on wages lower than the federal minimum wage.

Whilst the NES provides an employee entitlements such as annual leave, personal/carer’s leave, redundancy pay and notice of termination, and provides safeguards around working conditions (by prescribing maximum weekly hours of work); the NES and the Federal Minimum wage don’t always provide the full picture.

For example, whilst a full-time employee can work a maximum of 38 hours per week, the NES is silent on other features of the employment relationship such as when those hours can be worked, penalty rates that may apply or even if an employee is entitled to a meal break. The FWA also only provides that an employee must be paid at least the federal minimum wage. This is not reflective of the true wage paid or conditions usually afforded to the majority of employees!

Modern Awards essentially step in, building on top of the FWA, NES and federal minimum wage to afford employee’s additional minimum entitlements recognising the nature of their occupation or industry they work in. Importantly, Modern Awards sit on top of the minimum legislated requirements, in effect offering an extra layer of employee protection.

As an owner or manager it is important to know which Modern Awards apply to employees in your business. This is not always an easy task- especially if you employ a number of different roles! Failing to know which Modern Awards apply however can mean your business is potentially underpaying staff or not affording them the terms and conditions which they are entitled to. This can lead disputes with employees or potential action being brought against you by the workplace watchdog, the Fair Work Ombudsman.

The rates of pay in Modern Awards usually change in July each year- for this reason is it vital to keep up to date with the Modern Awards that apply within your business! This becomes particularly relevant if you pay employee’s a salary- it is recommended this is reviewed at least yearly in order to ensure no underpayment has occurred.

The following hypothetical helps explain how Awards interact with the NES:

Bob’s Tires is a small tire repair business who is currently recruiting an employee to perform clerical work: data entry, filing and answering phones. At the time the advertisement is placed the federal minimum wage for an adult is $19 per hour.

Employees engaged to perform solely clerical work are covered by the Clerks-Private Sector Award 2010. Let’s say, for arguments sake, the Clerks Award provides that an employee doing this work must be paid $25 per hour. As the candidate will be Award covered, the minimum rate in the Modern Award becomes the new minimum wage for the employee, replacing the federal minimum wage of $19 per hour.

Bob’s Tires will be required to pay this employee at least $25 an hour in order to comply with the Award. If they don’t, Bob’s Tires could be exposed to not only underpayment liability, but civil penalties (fines) for breaches of the Modern Award.

Is every employee in Australia covered by a Modern Award?

Whilst most employees in Australia are ‘Award covered’ such as doctors, nurses, teachers and administrative staff there are a class of employee’s who are known as ‘Award Free’. Generally award free positions represent managerial roles at the very top of an organisation. Other award free employee’s however can include lawyers, accountants, human resource professionals, marketing or in-house IT personnel.

Whether or not an employee is ‘award free’ depends on an examination of role the employee is performing and the work environment they are working in. For ‘Award Free’ employee’s as long as they are paid at least the federal minimum wage and are afforded all benefits owing to them under the NES, an employer is not obligated to provide any additional benefits unless they choose to do so through their organisational policies or an employee’s contract of employment. Importantly though, an employer cannot ‘contract out’ of an Award. Agreeing with an employee to forego entitlements i.e. working below Award rates of pay (or the federal minimum wage if the employee is ‘Award Free’), is against the law.

What about the Miscellaneous Award 2010?

A common trap for new players is to be tempted by placing employees who have traditionally not been covered by an award under the Miscellaneous Award 2010.

Be mindful, the Miscellaneous Award provides an exception so as not to cover those employees ‘ who, because of the nature or seniority of their role, have not traditionally been covered by awards including managerial employees and professional employees such as accountants and finance, marketing, legal, human resources, public relations and information technology specialists’

As such, whilst the Miscellaneous Award may apply in your business, it is not a default Award to cover everyone who falls outside the coverage of other industry or occupational Awards. In the event you hire a lawyer, manager, accountant or some other professional and can’t locate a Modern Award that applies, the employee is likely to be ‘Award Free’.

What kinds of Modern Awards are there?

There are over 120 different Modern Awards that cover a mix of industries, occupations or a combination of both.

When assessing what Modern Award may apply to your employee’s as an employer you should first consider what industry your business is in. Then you should consider what each particular employee has been employed to do. If your business is covered by a Modern Award with industry coverage, this may capture the majority of employee’s. If there is no industry award, employees may be covered by an occupational award that captures what they do.

Determining award coverage is a difficult challenge for employers and can often require external assistance. Remember, awards apply to employees and not necessarily a business as a whole. Accordingly it is possible to run a business and be required to comply with several different awards. For example, if you own a manufacturing business it is possible some employees will be covered by the Manufacturing Award and other employees will be covered by the Clerks Award.

Alternatively, it is possible to run a business and have the majority of employees covered by one award. This situation may arise in a work environment that is covered by a Modern Award with industry coverage- an example may be a social and community services organisation where the majority of employee’s are captured due to the breadth of the relevant Modern Award (the Social and Community, Homecare and Disability Services Industry Award 2010).

Helpfully, a number of modern awards are industry focussed- meaning employers only need to usually become familiar with one or two Modern Awards. Examples of this include Modern Awards relevant to the retail, hospitality, building and construction and manufacturing industries. Be mindful however your business should employ anyone for the sole purpose of completing administrative work, they will likely be covered by the Clerks Award- the Clerks Award is unique in the sense that almost every business will have an employee covered by this award, regardless of the industry in which they work. Similarly employees who are traditionally ‘Award Free’ (i.e. senior managers) are likely to not be covered by the industry Award.

‘Spend and Save’ Bank operates in the finance industry and employs a range of roles including: sales representatives, tellers, mail clerks and branch managers. The owner of Spend and Save may only be required to use one award- the Banking and Finance Award 2010 as Spend and Save is in the finance industry and the Modern Award provides coverage for these specific roles.

‘Healthy Bodies’ is a medical centre employing doctors, nurses, medical typists and physiotherapists. The owner of Healthy Bodies will have a somewhat more difficult task- there is no industry Award that contemplates medical centres per se; accordingly it is likely Healthy Bodies will need to use three different awards- the Medical Practitioners Award 2010 for doctors, the Nurses Award 2010 for nurses and the Health Professionals and Support Services Award 2010 for any other health professionals such as physiotherapists or speech pathologists and any required support staff such as medical typists.

‘Account4U’ is an accounting firm that specialises in wealth management. Account4U employs a number of administrative staff and several qualified accountants. As there is no industry Award that contemplates accounting, Account4U will be required to look towards the Clerks Award for the administrative staff. Qualified accountants however are likely to be ‘Award Free’.

I know what Modern Award applies… now what?

Once you know what Modern Award covers your employee’s you need to carefully consider what ‘classification’ in the Modern Award applies to them. Helpfully Awards contain classification descriptors enabling you to classify the employee and determine their correct rate of pay as per the Award.

How high an employee is classified in the Award will usually depend on their qualifications or experience. Some Awards require staff to be informed on commencement of employment of their classification. Some also contain ‘pay points’ or progression points requiring and employee to ‘move up’ the pay scales in the Award each year. For this reason it is important to be familiar with the Award that applies.

As an employer you will generally also have obligations in making a copy of the relevant Modern Award available to staff and additional obligations to consult with staff in the event of a major workplace change such as a redundancy.

 I have an enterprise agreement. Does that mean Modern Awards don’t apply to me?

In order for an enterprise agreement to be passed by the Fair Work Commission the agreement must pass the ‘better off overall test’- meaning the enterprise agreement must contain terms and conditions of employment that are more favourable than those that would otherwise apply to the employee under the Modern Award.

If your organisation has an enterprise agreement, this will usually replace the otherwise applicable Modern Award. This doesn’t mean the Modern Award is entirely irrelevant though! Each time your enterprise agreement is renegotiated it will be the Modern Award that it is compared against.

Who your enterprise agreement covers and doesn’t will depend on the terms of the agreement as it is drafted. If you are unsure of the coverage of your enterprise agreement, we recommend you seek advice in order to avoid any underpayment liability that may arise if some of your employees are not covered by the enterprise agreement and are in fact covered by the Modern Award.

All my employees are on a salary…. That means I can forget about the Award right?

This is a common mistake!  Whilst some employers would prefer to ‘bundle up’ an employee’s wages for all hours of work into a salary this doesn’t mean you can forget about the Modern Award.

Take the following hypothetical example:

‘Agile Admin’ employs Sarah as a full-time receptionist. Sarah is 24 and has no formal qualifications in administration- this is an entry level role to start her career. Accordingly, Sarah is classified under the Clerks Modern Award as a Level 1, Year 1 employee.

Sarah’s boss, Tina often will require Sarah to do a little extra work. Often Sarah might need to come in half an hour early or stay back late to help out other employees. Tina decides that it would be easiest to pay Sarah a salary contemplating all of her full-time work plus the additional work here and there. Tina has a look at the Award and sees that the minimum rate of pay for a full-time employee at Sarah’s level is $730 per week or approximately $38,000 per year. Tina decides in recognition of this extra work, she will pay Sarah a salary that is above the requirement of the Award. Tina decides to pay Sarah $41,000. Sarah is paid weekly.

Everything starts well, however things get busy and soon Sarah starts to work a little extra overtime each day. The Clerks Award provides for overtime rates. Sarah doesn’t receive these however as Tina has paid Sarah the salary.

Soon enough, Sarah’s pay each week starts to dip below what she should receive if the Clerks Award were applied. The above award payment she is receiving (of approximately $3,000 per year or $58 per week) is simply not enough to ‘cover off’ on the additional hours Sarah is working.

Sarah looks into her rights and decides to talk to Tina about it. Tina says that the Award overtime provisions won’t apply as Sarah is paid a salary. Sarah disputes this and decides to inform the Fair Work Ombudsman (the FWO). The FWO find an underpayment has occurred and order Agile Admin to repay Sarah the value of her overtime she had worked.

The above example demonstrates that even when employees are paid in excess of the relevant Modern Award, underpayment liability can and often does arise, in the event an employee’s salary hovers very close to Award requirements. As such, it is still necessary to be familiar with the Award’s terms in order to ensure no underpayment liability can arise and work practices are Award compliant. Regular monitoring, and potentially even auditing is essential.

As the rates in a Modern Award increase each year, it is important to remain familiar with the Award rates and ensure employee salaries are regularly reviewed. Terms of Modern Awards also are subject to change through the Award Review process conducted by the Fair Work Commission.