What is a modern award?
Modern awards set minimum terms and conditions of employment in addition to the National Employment Standards (NES). These include minimum rates of pay, ordinary hours of work, rostering requirements, requirements to take breaks, overtime, penalty rates, allowances and leave loading.
Who is covered by an award?
There are generally two kinds of modern awards – “industry awards” and “occupational awards”. In some instances, awards may be both industry and occupational.
Industry awards cover employers in particular industries. For example, the General Retail Industry Award covers employers in the general retail industry, defined as the retail sale or hire of goods or services for personal, household or business consumption. If there is a classification within the award for the type of work performed by an employee, then they will be covered by the award also.
Occupational awards apply to employees in particular occupations. A common example is the Clerks – Private Sector Award, which applies to employees wholly or principally engaged in clerical work. If an industry award covers an employer and that industry award has classifications that apply to clerical or administrative employees, that industry award will also cover the employee. However, if the industry award does not contain a classification for clerical or administrative, then it’s likely that the Clerks – Private Sector Award will apply to that employee, depending on their duties.
It's important to read the award’s coverage and classification clauses to determine who is covered.
What is a classification?
A classification is a description of the roles which are covered by an award. This generally includes duties, responsibilities, applicable qualifications or experience required, and indicative job titles. It’s important to get an employee’s classification correct as it will impact on their minimum rate of pay.
How do I know which classification applies to my employees?
In some cases this is a relatively straightforward task. However, in most cases it is more difficult and will require a judgment call due to the generic, broad, and often outdated terminology within awards. It’s important to consider the primary purpose or function of the employee. This doesn’t necessarily just mean assessing the duties for which the employee spends the greatest amount of time performing. It’s also important to remember that an award classification isn’t going to cover all your employee’s duties. It’s more about making an overall assessment as to whether the classification is sufficiently relevant, given the employee’s role, what they were employed to do, their qualifications, training and experience.
Can an employer be covered by more than one industry award?
Yes. Where a business has more than one “substantial character”, it can be covered by more than one industry award. For example, a coffee business may operate a cafe and a coffee roasting and production facility. The cafe is covered by the Fast Food Industry Award as is primarily sells takeaway coffee. The coffee roasting and production facility is covered by the Food Manufacturing Award.
Can an employee be covered by more than one modern award?
No. The award which applies to an employee is determined by the principal purpose for which the employee was employed. For example, a hairdresser may be required to perform administrative duties from time to time. As the principal purpose of their employment was to work as a hairdresser, the Hair and Beauty Industry Award will apply to the employee to the exclusion of all other awards. However, if an employee’s role changes, then their award coverage may change.
Can an employer decide whether an award applies?
No. Whether an award applies is based on whether the employer and/or employee is performing work covered by the award.
An employer and an employee can enter a ‘guarantee of annual earnings’, which is a written arrangement between an employer and an employee who is paid the high-income threshold or higher, that the terms of an applicable award do not apply.
What are the main clauses to look at when determining award coverage?
- The Coverage Clause (generally clause 4) sets out the types of employers and employees who are covered by an award.
- The Definitions Clause (generally clause 2) includes a number of definitions related to the award. In some instances, the coverage clause may state and define the coverage. In other instances, it may state the coverage and then definition of the industry is detailed under the Definitions Clause.
- Classification definitions (generally Schedule A) summarises the roles which are covered by an award, their duties, responsibilities, indicative job titles, etc.
What happens if an award does not apply to my business or my employees?
Your employees will be ‘award free’. The NES and the National Minimum Wage provide the minimum terms and conditions of employment.
In some instances the Miscellaneous Award may apply. This would include if the employee were performing low-skilled or trade-qualified work or a non-managerial or non-professional nature. For example, the General Retail Award does not contain a classification for a cleaner. In addition, the Cleaning Services Award does not apply because the cleaner is not engaged under a ‘contract’ basis. In this instance, if a retail business employed a cleaner, they would not necessarily be award free. Instead, it’s likely that the Miscellaneous Award will apply because they are performing low-skilled work of a non-managerial and non-professional nature.
What are the steps to determine award coverage?
- Provided that a registered enterprise agreement does not apply to your business, then review the list of modern awards found here: https://www.fairwork.gov.au/employment-conditions/awards/list-of-awards
- Review the Coverage clause, and where applicable the Definitions clause, to determine whether an industry award applies to your business.
- If no Industry Award applies to your business, then review potential Occupational award coverage for roles.
- Review the Classifications clause to determine whether there is a classification that is applicable to the work performed by your employees.
How do I ensure that I pay my employee the award entitlements that they are owed?
After determining the award coverage and applicable classification, you should review minimum rates, overtime, penalty rates, allowances and annual leave loading, to determine whether they are eligible for additional payments. In addition, you should ensure that the employee’s hours of work are in accordance with the award, including any applicable breaks.
What other award clauses should I be aware of?
- Definitions of full-time, part-time, casual or any other employment type permitted by the award, including any specific requirements around these.
- Annual leave, including any arrangements for shut down periods.
- Consultation about major workplace change.
- Termination and redundancy. In most cases, the award will refer to the NES, but some awards have specific termination and redundancy entitlements.
What is an offset or set-off clause?
An offset clause is a contractual arrangement between an employer and an employee, which allows an employer to pay the employee an above-award rate of pay in satisfaction of other award entitlements which may apply. For example, rather than paying an employee overtime, allowances and annual leave loading, an employer may use an employee’s above-award salary to offset the requirement to pay those entitlements. This may reduce the administrative burden of having to monitor when award entitlements apply to an employee.
If an employer is relying on an offset clause, they should be aware of associated risks, including:
- The offset clause should be in writing in an employment contract. While you may be paying an employee a salary that is substantially higher than the award minimum, this may not count for much if the offsetting arrangement is not agreed in writing.
- The offset clause should make specific reference to the award entitlements that are being offset by the above-award salary. For example, the clause should specifically state that the employee will not receive leave loading and that that entitlement is offset by the above-award component of their pay.
- The above-award component of the remuneration must be high enough to fully meet the employer’s award obligations. It’s recommended that the employee’s remuneration is regularly reviewed if the award or the employment arrangement changes, i.e. changes to the hours of work.
Will MyHR review employee award coverage when they are entered into MyHR?
MyHR can assist you in determining award coverage where you request this assistance. In addition, we will identify clear award compliance issues when you enter employees into MyHR, for example where a rate of pay entered is less than the minimum for the lowest classification of an award or where the award selected is clearly wrong. However, we will generally not be able to assist in assessing award coverage or compliance when employees are added to MyHR. It’s important that you determine award coverage and ensure that you’re paying employees in accordance with the award before adding them to MyHR. If you are unsure, contact Advisory Services for assistance.