The Fair Work Commission has varied 97 modern awards so that the casual loading is compounded by overtime penalty rates, using the same reasoning applied to written expressions of penalty rates in the Aged Care Award.  Among the affected modern awards are the Building and Construction General On-Site Award, Clerks – Private Sector Award and Manufacturing and Associated Industries and Occupations Award.

The Fair Work Commission rejected the arguments of employer groups that the application of the compounding formula in the aged care sector contradicts the accepted proposition that penalties should not be applied to loadings.

The Full Bench of the Fair Work Commission ruled that its approach is based on the use of the expressions “time and a half”, “double time” and “double time and a half” in the Aged Care Award.  This approach considers the “time” referred to as the rate of pay that is payable to an employee for ordinary hours.  The ordinary time rate for casual employees includes the casual loading; therefore, the overtime rate for casuals is calculated by reference to the ordinary time rate inclusive of the casual loading unless otherwise provided by the modern award.

Employer groups referred to the decision of Re Aged Care Association Australia Ltd & Others, where a single member of the Fair Work Commission rejected an application to vary the Nurses Award to provide that penalty rates for weekend work substituted the casual loading.  The Full Bench noted that the ‘normal notion’ that penalties are not applied on penalties is not universally applied and that casual loading was not traditionally characterised as a penalty rate.  It pointed to the structure of s.139(1) of the Fair Work Act 2009 (Cth), which separately categorises ‘minimum wages’ (which includes casual loadings under s.284(3)) and penalty rates (which includes working unsocial, irregular or unpredictable hours such as on holidays or weekends).  It concluded that the idea that penalties are not applied on penalties was not relevant to the application of a penalty rate to the minimum ordinary-time rate that includes the casual loading.

The affected modern awards will express the applicable penalty rate as a percentage to be applied to the base rate of pay and an explanatory note for the calculation of the penalty.  While this will clarify the position for employers, businesses will be required to update their payroll systems to ensure compliance and review their operational requirements according to any changes in costing.

Lessons Learned:

  • New overtime penalty rates for casual employees will be inserted in 97 modern awards;
  • The changes will take effect from 1 March 2021 for the Aged Care Award and 20 November 2020 for all other affected modern awards;
  • The changes will not impact enterprise agreements that operate to the exclusion of an underpinning modern award, however they will apply to businesses covered by enterprise agreements that incorporate or are read in conjunction with the terms of a modern award; and
  • The full schedule of affected modern awards and determinations is available here.  It is advisable that employers review their payroll systems to ensure they remain compliant from the effective date.
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