An employee’s wage can be a multifaceted and complex calculation. The employee needs to be compensated in accordance with a number of possible instruments, such as an employment contract, modern award, Enterprise Agreements (EAs) or the minimum wage.
When calculating a wage consider applicable allowances, overtime and weekend penalties, and minimum rates. If an employee is not covered by an award (“award-free”), they will need to receive at least the Australian minimum wage and the National Employment Standards.
The following industrial instruments govern the entitlements of an employee in Australia. It is important that businesses know what applies to their employees and how it effects daily business activities:
Along with the National Employment Standards entitlements, many workers are covered by a modern award. There are 122 modern awards. The modern awards are a system of industrial instruments that set out the minimum terms and conditions of employment on top of the NES.
When exploring whether your business and employees are covered by an award, first consider the industry in which you operate and whether there is a relevant industry award. If there is no appropriate coverage in an industry award, then consider the employees’ occupation and whether there is an applicable occupational award. Sometimes an employee’s tasks and duties are not covered by the industry or occupational award, meaning that they are award free.
The modern award covering your employee might contain more generous terms than those in the 10 NES. Be sure to check the applicable award for terms that vary from these entitlements. The modern award will also typically include industry or occupation specific allowances, overtime and penalty rates. It can also include terms about consultation and major workplace change - just to name a few of the entitlements.
Prior to the modern award system being introduced in 2010, the pre-modern awards dictated employee entitlements. Generally, pre-modern awards are significantly different to the current modern awards. Pre-modern awards are still consulted in some circumstances, for example for some Long Service Leave entitlements and for some classifications under the Social, Community, Home Care and Disability Services Industry Award 2010.
The employment contract
An employment contract is another instrument overseeing an individual’s employment conditions and may include additional terms of employment that are specific to the organisation, for example, confidentiality requirements and business hours. It is imperative that this document is not used to avoid the minimum entitlements under the NES. Likewise, where an employer offers the employee more beneficial terms and conditions, we recommend these are detailed in the contract.
Individual Flexibility Agreements (IFA)
The modern award system has in-built flexibility to assist an employer and employee navigate unique situations in the relationship. These agreements can be used to specify particular award terms, but always check the wording of your award closely.
These terms are:
- Arrangements for when work is performed
- Overtime rates
- Penalty rates
- Leave loading
Employers do not need the permission of the Fair Work Commission (FWC) to make an IFA. It is the employer's responsibility to ensure that the agreement is made in line with the award terms and conditions.
- Be mindful that these kinds of agreements need to be made genuinely, where the employee is not under duress to sign the agreement
- Be aware IFAs in EAs can have slightly different conditions for example a termination period of 28 days
- Have documentation to demonstrate how the employee is ‘Better Off Overall’ under the agreement as opposed to the award term
- Know which terms can be varied
- Be aware the termination period that applies to an IFA is 13 weeks when the agreement has been made on or after 4 December 2013
- Include discriminatory terms in the agreement
- Use the agreement to avoid award terms. The employee needs to benefit under the agreement