Have you ever tried getting a wood machinist to work for the award minimum?!

Sometimes employers will want to ensure that paying a higher rate for ordinary time also ‘buys out’ the obligation to pay other entitlements under the award.

For example, most modern awards require the payment of annual leave loading. But, if an employer is paying over the award rate of pay, he or she may assert that the loading is not separately payable because it has been incorporated into the agreed hourly rate.

In fact, if that has not been explicitly agreed between the employer and the employee, then the employee could still claim the leave loading.

How can the employer avoid an underpayment claim?

Every modern award contains a flexibility clause that allows an employer and an individual employee to agree to vary the terms of the award in relation to:

  • Arrangements for when hours are worked;
  • Overtime rates;
  • Penalty rates;
  • Allowances; and,
  • Leave loading.

In this example, the employer would make a flexibility agreement with the employee specifying that the higher rate of pay is partially paid in compensation for annual leave loading, which would not be paid separately.

Provided the employer can demonstrate that the employee would not have been better off if she or he had been paid in accordance with the award, the agreement will be enforceable.

The terms of the relevant modern award specify the steps that must be taken, and what must be agreed to in writing, for such an agreement to stand up to scrutiny.

Watch out for…

Employees cannot be offered a job that is conditional on them signing a flexibility agreement, and this type of agreement can only be made after the employee has started working for the employer.

Neither an employer nor an employee can be forced to agree to the terms of a flexibility agreement.

My advice to employers is that if you want a higher hourly rate of pay to compensate for various award entitlements, then you should offer the employee a choice of the higher hourly rate and a flexibility agreement, or payment strictly under the award.

If a flexibility agreement is not made in accordance with the relevant award, then it has no effect, despite the employee’s agreement and the employee could later claim that they were underpaid.

This could lead to fines of up to $51,000 for a body corporate.

Either the employer or the employee can terminate a flexibility agreement with thirteen weeks’ written notice, or less notice by agreement, but the termination of the agreement does not terminate the employee’s employment.

Where an employer wants to make a flexibility agreement with an employee under 18 years, the employee’s parent or guardian must be asked to sign the agreement.

At the time the agreement is made, an employee must be better off overall, compared to their entitlements under the award.

What other situations might suit a flexibility arrangement?

A flexibility arrangement would help protect both the employer and the employee in widely varying situations; such as:

Scenario 1

The employer and the employee agree to a 40 hour work week. The employer does not want to pay time and a half for the two hours in excess of 38 hours per week, so they agree that the employee can be paid a flat rate of pay. When the agreed hourly rate is multiplied by 40, the total meets or exceeds the amount the employee would have been paid had they been paid for 38 hours at ordinary time and 2 hours at time and a half.

Scenario 2

An employee wishes to start work at 6 am so he can finish work in time to pick up his son from school every afternoon. The award requires that any time worked before 6.30 am is paid at overtime penalties because it
is outside the spread of hours. The employer and the employee use a flexibility agreement to allow the employee to be paid ordinary time from 6 am. The benefit to the employee is that he can balance his work and family responsibilities more easily.

If the flexibility agreement was not properly made, the employee could later claim overtime penalties for that time worked, even though he had requested the arrangement.

Scenario 3

An employee works their 38 hours Tuesday through to Saturday. The Timber Industry Award 2010 penalty for working ordinary hours on a Saturday is time and a half all day. The employer and the employee agree on a flat rate of pay that covers, at least, the amount the employee would have been paid under the award for working those hours, including the penalty.

This must be expressed in a flexibility agreement in order to remove the requirement to pay the penalty on top of the higher rate of pay.


Emma Watt is an independent industrial relations consultant with almost 20 years’ experience in the timber industry.

Phone: 0411 708 073 or Email: emma@emmawatt.com.au