Many employers start their business without realising that their employees are covered by modern awards. In many circumstances, an employment agreement will not override the terms of an award, leading to employers accidentally underpaying employees or requiring work to be performed in prohibited circumstances. So how can you ensure that the needs of your business and your obligations to your employees are both met? This is where an individual flexibility arrangement (or IFA) comes in.
What is an IFA?
An IFA is an agreement between an employer and an employee that certain terms of an applicable modern award or registered agreement will be varied. Each award or registered agreement must have an ‘IFA clause’, and if none exists then a template clause included within the Fair Work Act 2009 (Cth) will apply.
The IFA clause within the relevant award or registered agreement will specify which terms can be altered. The terms able to be amended within a registered agreement will vary, but most awards will allow employers to alter clauses relating to:
- Arrangements for when work is performed, including working hours;
- Overtime rates;
- Penalty rates;
- Allowances; and
- Leave loading.
However, IFAs cannot be used to reduce or remove an employee’s entitlements, and any IFA which is entered into must leave the employee “better off overall” than if they had simply remained under the original terms of the award or registered agreement. What this means is that in effect, if an employee’s salary and other benefits under the IFA outweighs the benefits that they would be entitled to (including overtime and penalty rates), an employer can ask employees to work additional hours or outside of prescribed times without incurring additional costs for overtime. Benefits which can be considered as part of the better off overall test include (but are not limited to) car allowances, phone allowances, licences to occupy property and additional leave.
Award minimum rates are changed on an annual basis, and registered agreements are often subject to amendments. Employers should review their IFAs and the relevant award or relevant agreement on an annual basis to ensure that the employee remains better off overall under the terms of the IFA. If not, the IFA will cease to have effect, and potentially leave employers open to underpayment claims.
All IFAs must have the ability to be ended by agreement between the parties. The specific terms of how the IFA is to be ended are included in the IFA clause in the relevant award or registered agreement.
The best way to think of an IFA is to consider it as a document which sits over the top of your employment agreement, award or registered agreement. The underlying document will set out most of the terms of employment, and the IFA will vary specific terms in return for the benefits you offer to your employee.
So when do I use an IFA?
The best time to implement an IFA is when an employee starts at your business. This way, you can provide an employment agreement or registered agreement with the minimum terms applicable, and then offer the IFA (which would include the higher salary or other benefits) which would form the new base salary and expectation of working arrangements.
It is important to note that IFAs cannot be entered into unilaterally (i.e. an employee must agree to the IFA). If your employee is already covered by an employment agreement which gives them benefits above the award or registered agreement, it will often be difficult to persuade an employee to sign an IFA, and they cannot be forced to do so. As such, if you are looking to implement IFAs for existing employees, you may need to consider one-off incentives as compensation.
To see if an IFA is suitable, you may wish to consider the following:
- Is the employee covered by an award or agreement? (Tip: Be sure to check awards such as the Miscellaneous Award 2020 (Cth) or the Professional Employees Award 2020 (Cth). Some awards will cover a surprising range of professions and jobs!)
- What does the IFA clause allow to be varied, and is this suitable for your business?
- Does the salary and other benefits which you are willing to offer under the IFA outweigh the benefits the employee would have under the terms you are trying to vary?
- What are the terms of their employment agreement? (Tip: if you are seeking to implement an IFA, you should ensure that the terms of the employment agreement specifically tie to the relevant award or registered agreement. The employee would then only be entitled to additional benefits if they agree to the IFA).
While not suitable for every business, IFAs are a useful tool to prevent your business from paying additional overtime amounts to highly paid employees, and to provide you with certainty on the benefits you are providing to your employees on an annual basis.
