A simple guide to employee award coverage
Overview (what are modern awards)
Modern awards, such as the General Retail Industry Award or the Social, Community, Home Care and Disability Services Industry Award for example, are legally binding instruments that set out a range of minimum terms and conditions of employment for employees that are covered by the relevant award.
Modern awards provide additional protection to employees by containing terms and conditions that are more comprehensive and beneficial than the National Employment Standards (NES) which are part of the Fair Work Act 2009 (Cth). There are more than 100 modern awards currently in operation, applying to specified industries, specific occupational groupings or both.
Modern awards have been in effect since 1 January 2010 following the “award modernisation” process carried out by the Australian Industrial Relations Commission, where more than 1500 federal and state awards were replaced. The Fair Work Commission now oversees modern awards.
Modern awards cover a significant portion of the Australian workforce and particular aspects are often misunderstood, so it is important that employers are aware which awards cover their workforce, and what this means. Non-compliance with the terms of a modern award that applies to an employer can result in serious consequences, including significant financial penalties and compensation orders.
When does a modern award cover an employer and its employees?
In general terms, a modern award covers an employer and an employee if the award is expressed to cover those parties in relation to the employee’s employment. However it is not always straightforward to work out what this means in a particular case.
There are different categories of modern awards, including:
Industry awards which only apply if a business operates in the defined industry e.g. Fast Food Industry Award;
Occupational awards which apply to particular roles that an employee may perform for a business e.g. Clerks – Private Sector Award;
Awards that apply both to an employer operating in a defined industry and to particular roles that an employee may perform for any employer e.g. Health Professionals and Support Services Award; and
The Miscellaneous Award which acts as a last resort and may apply to some employees who are not covered by any other awards.
Each modern award contains coverage and classification terms that describe which employers and employees it covers, including rules about which award should take priority in the event that more than one award could potentially cover an employee. For example, an industry award will ordinarily apply in priority to an occupational award if both awards contain an appropriate classification that could cover a particular employee’s role.
Each employee will only be covered by a particular award, if the award contains a classification that is appropriate for the job the employee is employed to perform. Care must be taken to identify the right classification (taking into account relevant issues set out in classification definitions in that award, such as the nature and seniority of the role, the duties performed, and/or skills or qualifications held by the employee).
There is also the possibility that multiple awards may apply in one workplace. For example, a building and construction business could employ qualified carpenters as well as some office staff who do administration work – in this case, the Building and Construction Award would likely apply to the carpenters while the Clerks – Private Sector Award would likely apply to the office staff.
What is the significance of award coverage?
An employee who is covered by an award obtains the advantages of more beneficial minimum terms, conditions and entitlements than if they were ‘award free’. These include for example:
Higher guaranteed minimum rates of pay;
Information that must be given to employees;
Rules about when work can be performed, and when penalty rates or loadings apply;
Provisions for overtime rates and allowances;
Requirements for consultation about major workplace change; and
A dispute resolution procedure.
On the other hand, if an employee is ‘award free’ and does not fall within the coverage of any award, their minimum guaranteed entitlements are stipulated by the NES and the national minimum wage order. The practical effect of this is that an employer may only pay an award-free employee the national minimum wage, without also providing other benefits received by award covered employees, such as overtime rates, allowances or set meal breaks. An employer may still decide to provide employees with these conditions through employment contracts or policies and must not undercut the NES, even if an employee is award free.
The importance of getting it correct
Employers do not have a choice to ‘opt-out’ of the modern award system. If an award applies to an employee in relation to particular employment, the employee is automatically entitled to the benefits under that award, and the employer will be bound to comply with the terms of that award.
The Fair Work Act enables employees and other parties, such as representative unions and the Fair Work Ombudsman, to bring Court proceedings to enforce compliance with awards terms and seek remedies for non-compliance.
From an employer’s perspective, getting award coverage and compliance correct is crucial. Employer’s must consider whether each individual employee is covered by an award, and if so, classified according to the correct level within that relevant award, in order to ensure the relevant terms, conditions and entitlements are put into effect by the employer. Getting any of this incorrect may see an employee be underpaid, in addition to missing out on other entitlements, and the employer penalised for its non-compliance.
Employers that do get this wrong may be liable for claims for compensation by employees and may be required to backpay employees, pay interest on underpayments and/or face financial penalties. Non-financial remedies (such as education and training) can also be ordered. Depending on the seriousness of the contravention(s), the maximum fine for a corporation can be up to $825,000, whilst individual directors or managers are not immune from personal liability and can be fined up to $165,000. This is on top of potential negative publicity and reputational consequences.
FAQ’s regarding awards
If I pay ‘above award wage’ do I still need to follow the award?
Yes. Paying an employee above the minimum rates contained in an award does not mean that the award no longer applies to that employment. Pay is only one component of an award, and the employer will still be bound by all the other components (both financial and non-financial) of the award despite paying more than what the award requires.
If an employee is paid a salary, does that mean an award no longer applies?
No. Application of an award is not dependent on what or how an employee is paid. However in some cases, various award pay entitlements can be incorporated into a salary, either by use of an effective “offset clause” in the employee’s contract, or by following specific provisions set out in the award.
If an employee signs a written employment contract, does this mean they are not covered by an award?
No. Employers cannot contract out of the modern award system. An employment contract will not override or replace an award, nor can it make employees any worse off than their entitlements under an award.
My workplace has an enterprise agreement in place, does an award still apply?
It depends. An enterprise agreement contains negotiated terms and conditions that are specific to one or more employers and their employees, and must result in employees being better off than they would be under the award that would otherwise apply to them. If an enterprise agreement applies to a particular employee, then any modern award that covers the same employee no longer applies to them (i.e. the employer is not directly bound to comply with its terms). However, some enterprise agreements incorporate award terms, and any employee who does not fall within the coverage of the enterprise agreement might still be covered by an award.
Can’t I just place an employee under the Miscellaneous Award if I am not sure?
This is a common temptation however it is important to properly consider whether any other award applies before applying the Miscellaneous Award. This award is intended only as a last resort for certain employees who are not covered by any other award, for example those in niche/emerging industries and/or who perform lower-skilled and relatively junior duties not captured by classifications in an industry award covering the employer. In addition, not all employees who fall outside all other awards fit within the coverage of this award – for example employees who perform professional and managerial roles are specifically excluded from coverage by this award. The Miscellaneous Award contains less beneficial terms than many other awards, so getting this wrong can be a costly mistake.
Key Takeaways
It is imperative that employers carefully consider their employee’s award coverage and classification in order to identify the correct minimum terms and conditions of employment for each employee, and make sure employees are treated and paid in a lawful way. Correctly identifying award coverage and classification helps employees to be aware of their terms, conditions and entitlements, and employers to keep track of financial and non-financial obligations owed to their employees. Award compliance should also be reviewed regularly as modern awards are updated and amended over time, including as a result of annual wage reviews.
Interpreting awards, and determining which award and classifications apply to employees can be confusing and time consuming. However, the consequences of getting it wrong can be far more time consuming and costly for an employer than getting it right. For these reasons we recommend seeking expert legal advice when approaching any award related matters from our knowledgeable team:
Article prepared by:
Jim Babalis
Special Counsel
T 03 5225 5205
E jbabalis@ha.legal
Sonia McCabe
Senior Associate
T 03 5226 8558
E: smccabe@ha.legal
Matthew Synoradzki
Lawyer
T 03 5226 8542
E msynoradzki@ha.legal
