Navigating the complex world of employment and remuneration laws can be a daunting task for employers. Among the various regulations and requirements, Modern Awards stand out as a particularly misunderstood aspect of the Australian industrial landscape. In this article, we aim to shed light on 5 common misconceptions and the potential consequences of misunderstanding or neglecting your employer responsibilities under the Modern Award system.
An introduction to modern wards and their coverage
Modern Awards were introduced in January 2010 and replaced a myriad of State and Federal Awards, streamlining employment conditions and standards across various industries. There are currently over 120 Modern Awards in Australia, each establishing the minimum wages and working conditions for specific occupations or industries. Each Modern Award operates in conjunction with the National Employment Standards under the Fair Work legislation and applies to all employees covered by the national workplace relations system.
Misconception 1: “Modern awards only concern payroll”
Modern awards address more than payroll. The contents of each Modern Award differ from industry to industry, but they will often address key details of an employment relationship including:
- Wages including minimum wage rates, penalty rates, allowances and loadings;
- Working hours including ordinary working hours, rest breaks and overtime;
- Leave entitlements including their accumulation and usage;
- Ending the employment including termination, redundancies, and notice periods; and
- Flexible work arrangements including part time or casual employment.
Misconception 2: Employers can agree with employees to “opt out” of an industrial award
Awards apply as a matter of law and not choice. If a business employs people and the employer is not a State or local government entity, then the national workplace relations system and Modern Awards will apply to your workplace. The only exceptions to this are private individuals or partnerships who may employ people in Western Australia.
Misconception 3: “If I pay above Award rates, the modern award doesn’t apply”
An employee can agree not to be subject to Award requirements only if an employer provides a high income guarantee in writing which guarantees the employee will be paid over the high income threshold (currently $167,500 p.a. excluding superannuation). Otherwise, Award provisions must be complied with for the positions covered by the Award.
In APESMA v Peabody Energy Australia Coal Pty Ltd (2022) the Federal Court ruled that a guarantee of earnings required something more than a mere contractual promise to pay an employee a specified salary:
- The employer had to notify employees who are covered by a Modern Award of the consequences of accepting a guarantee of annual earnings;
- The employer also had to give a written undertaking or guarantee to pay an amount of earnings for a specified period; and
- The employees had to accept the undertaking.
Misconception 4: “If I pay above award rates, I don’t have to pay overtime or penalty rates.”
If you’re paying an employee ‘above Award rates’ in lieu of certain entitlements under the Award (for e.g. overtime, etc), you must make sure your employment contract specifies which Award entitlements are being discharged by this extra payment. Further, you must:
- ensure that employees are paid the same or more overall than under the Award for all hours of work;
- keep time records;
- ensure the employment contract contains an appropriate ‘offset’ clause; and
- follow Award requirements for non-financial items such as breaks, leave and termination.
In these cases where employees who are covered by an Award are receiving hourly rates which are greater than the minimum rate of pay under the Award, you must avoid entering an overly simplistic employment contract without an effective set off clause.
Misconception 5: There is no industry award for an employee so they must not be covered
The application of most Modern Awards is determined according to either the industry within which the employer operates or the employee’s occupation. For example, a nurse may either be covered by the ‘Nurses Award’ or the ‘Social, Community, Home Care and Disability Services Industry Award’, depending on who their employer is.
When choosing the correct Modern Award for an employee, a good starting point is using the Fair Work Commission Awards Finder Tool to determine which Modern Award(s) may apply to your workforce. Next double check that you are referring to the right Award by comparing the employee’s duties with both the Modern Award’s coverage clause and job classification clause that provide information about the employers or industries to which the Modern Award applies. If an industry or occupation does not have a dedicated Modern Award, your employees may be covered by the aptly named ‘Miscellaneous Award’.
Non-compliance with modern awards
A breach of an Award may attract civil penalties. In terms of financial consequences, you may be required to pay an employee their outstanding entitlements and/or compensation for loss suffered by them. You may also be made to pay a penalty of up to $18,780 per contravention for an individual and $93,900 per contravention for companies.
Where your breach constitutes a ‘serious contravention’ (i.e., the court believes that you knew you were breaching the Award or that you have a pattern of breaching the Award in this manner), a higher penalty may be imposed. In this situation a court can require you to pay up to $187,800 per contravention for an individual and $939,000 per contravention for companies.
The court may also require non-financial remedies depending on the circumstances. For example, they may require you to reinstate a terminated employee to their former position; they may require your business to undergo an audit; or you may be required to undertake training.
It goes without saying that the correct education on Modern Awards can go a long way towards ensuring that your employment relationship with your staff meets the criteria set out in legislation and prevent you from incurring easily avoidable costs.
All business owners should ensure that they (or their HR teams) understand the Modern Awards that apply to their employees. We encourage business owners who need assistance with Modern Awards to seek legal advice, to ensure that they are not unnecessarily exposed.
(note that $ figures quoted are current as at the time of writing – November 2023).
