It is important to note that at the time of writing the publication of determinations that change the minimum wage rates in modern awards, had not yet been issued and ordered by the FWC.
Based on the decision, from the first pay period commencing on or after 1 July 2015, the minimum wage rates in modern awards will rise by 2.5 per cent.
The new national minimum wage for adult award and/or agreement free employees is projected to be $656.90 per week or, $17.29 per hour, an increase of 42 cents per hour (based on the figures from the previous financial year).
The weekly wage rates in modern awards will also increase by 2.5 per cent. Junior employees, apprentices and trainees will get proportionate increases based on wage schedules in the relevant modern award. These classifications of employees are usually paid a percentage of the relevant adult rate.
As a comparison, private sector enterprise agreements that were current as of 31 December 2014 showed an average annual wage increase of 3.5 per cent. The low rate of inflation, and a decrease in wages growth generally, were both factors in the FWC’s decision to award a modest increase.
The growth in unemployment and a projection that Australia will take longer than originally expected to return to a state of economic growth were also considered.
Finally, the FWC was mindful of the need to ensure that the award system is a safety net, designed to encourage collective bargaining and to ensure it is in line with the objects of the Fair Work Act 2009.
Allowances will also increase, either because the ‘standard rate’ on which the allowance is based will increase, or because the allowance will be indexed in line with the relevant CPI group.
For example, in the Timber Industry Award 2010, the Leading Hand allowance for someone supervising two to six employees is 3.3 per cent of the ‘standard rate’, which is defined as the minimum weekly wage for Level 5 – currently at $746.20.
The ‘standard rate’ will increase to $764.90 (give or take future rounding applied by the FWC), so the Leading Hand allowance will increase from $24.63 per week to $25.24.
Again, confirmation of these new figures will be announced by the FWC.
This increase in minimum modern award rates does not necessarily mean that all employees will be due a pay rise. If the work the employee does is covered by a modern award, and their rate of pay is already in excess of the minimum enforceable wage rate for the classification of work being done, then the employee is not automatically entitled to a pay rise.
If the employer has agreed with the employee that minimum wage increases will be passed on regardless of the employee’s entitlement, then the employer may have a contractual obligation to pay the increase in that circumstance.
Any employee who is covered by an enterprise agreement will not be entitled to a wage increase unless the agreement specifies that this is to happen. For example, if an enterprise agreement states that remuneration will increase in line with decisions of the Fair Work Commission, then the employer would be expected to pass on the 2.5 per cent increase to all employees working under the agreement.
If, however, the agreement says something along the lines of “this agreement excludes decisions of the Fair Work Commission”, then the employer could reasonably ignore this FWC decision.
While we are on the topic of wage rates, it is worth touching on a couple of reasons why an employer might pay an over-award, ordinary time, rate of pay.
Last month I talked about an employer paying a higher rate of pay that was expressly designed to include payment for some entitlements, such as a specified amount of overtime, or annual leave loading.
The effect of a change in minimum rates of pay in the modern award is that employers will need to revisit the calculation of any flat rate of pay, to check that the rate still covers the entitlement. For example, if the employer pays a flat rate that includes payment for a couple of hours of overtime, you need to be confident that the rate still covers 38 hours at ordinary time, and two hours at time and a half, based on the new minimum rate.
Another reason that an employer might pay over award for ordinary time (38 hours) is that they recognise that the employee contributes at a higher level. In that situation, the employer might wish to restrict overtime payment to the minimum required under the relevant award.
Let’s say the employer values the employee’s work, and wishes to pay $5 per hour more than the award, but doesn’t want to end up paying $7.50 per hour and, consequently, $10 per hour more due to overtime. In this instance, the employer can agree with the employee that the ordinary time rate is $5 per hour more than required, but overtime is paid at time and a half and double time, based on the award minimum rate of pay for the classification of work being performed.
Provided this is clearly documented and agreed by both parties, this is an acceptable method of working out what to pay an employee.
Emma Watt is an independent industrial relations consultant with almost 20 years’ experience in the timber industry.
Phone: 0411 708 073 or Email: firstname.lastname@example.org