Penalty rate cuts due to take effect next month

Retail eBulletin - 7 June 2017

Summary

In the latest development in the penalty rates case, the Fair Work Commission has decided to phase in the cuts to Sunday penalty rates in the retail sector over four years.  This means that the full effect of the cuts will not take effect until 2020.

However, the initial reduction of 5% from 1 July 2017 will be nearly completely offset by the recently announced increase in minimum award rates of pay.  In addition, the threat of an appeal means that the phase in period could be further delayed.

In this eBulletin we take a look at the Fair Work Commission’s latest decision, and touch on the possibility that the phase in period could be further delayed by unions seeking an on-going stay while they challenge the penalty rates decision in the Federal Court.

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Background

In late February this year, the Fair Work Commission determined that existing Sunday penalty rates in the General Retail Industry Award 2010 (Award) did not meet the modern awards objective (Penalty Rates Decision). The effect of the Penalty Rates Decision was to reduce Sunday penalty rates in the retail sector from 200% to 150% for full-time and part-time employees and from 200% to 175% for casuals. We discussed these changes in more detail in a previous article.

On 1 July this year, Sunday penalty rates in the retail sector for full-time, part-time and casual employees will fall from 200% to 195%. This initial decrease of 5% is relatively small, as penalty rates will fall by 15% each year from 2018 until they reached 150% in 2020.

The full transition period is outlined as follows:

Full time and part-time employees

1 July 2017: 200% to 195%

1 July 2018: 195% to 180%

1 July 2019: 180% to 165%

1 July 2020: 165% to 150%

Casuals

1 July 2017: 200% to 195%

1 July 2018: 195% to 185%

1 July 2019: 185% to 175%

This transition is slower than anticipated. In its initial decision, the Full Bench confirmed that there is a need for appropriate transitional arrangements to mitigate hardship following the decision to cut penalty rates. Phasing in the rates on 1 July each year will mean that the reduction in Sunday penalty rates will be offset by the annual increases in the minimum wage.

Employer groups argued for a shorter transition period, suggesting that it would result in a positive effect on employment materialising earlier. However, the Full Bench was not persuaded. It did, however, reject submissions from the Shop Distributive and Allied Employees Association (SDA), United Voice, and the ACTU that the reduction in Sunday penalty rates should be delayed for two years.

The day after releasing its penalty rates decision, the Fair Work Commission issued its national wage case decision, increasing the national minimum wage by 3.3%. This change will increase the minimum wage by $22 per week to $694.90, and will also flow through to all minimum award rates of pay. The 3.3% increase in applicable award rates will nearly completely offset the initial 5% reduction from 1 July 2017. This means that retailers will need to wait a further 12 months before seeing any real change from the penalty rates decision.

What about the reduction to public holiday rates?

Public holiday rates for full-time and part-time employees under the Award will reduce from 250% to 225%, whilst casuals will continue to receive a penalty rate of 250%. These proposed cuts to public holiday rates will take effect from 1 July 2017 without a transition period as the Full Bench considered that most of the public holidays took place in the first half of the year.

The proposal to reconsider the Penalty Rates Decision

The Full Bench rejected arguments raised by a number of parties including United Voice, the ACTU, and the Federal opposition, that the Penalty Rates Decision should be set aside or "not implemented" because it had failed to give appropriate weight to the relative living standards and the needs of the low paid.

This argument forms the basis of United Voice's proposed application for judicial review of the Penalty Rates Decision. United Voice has now confirmed that it will apply for a judicial review of the decision and seek stay orders until the application is decided. The SDA has also proposed an appeal.

If a stay of the Penalty Rates Decision is granted, the cut scheduled for 1 July 2017 will not go ahead until the application for judicial review is decided.

Where to next?

With 1 July 2017 only just around the corner, employers whose remuneration model is based on the Award should start taking steps to prepare for the transition. This includes making sure your payroll or accounts department are aware of the changes.

For those employers with enterprise agreements, the long transition period will add complexity to an already difficult bargaining scenario. With the potential for an appeal and stay of the Penalty Rates Decision, employers need to be watching closely to ensure that they apply the correct rates come 1 July.

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Authors
Rani Wise, Lawyer
Daniel Proietto, Partner

 

Further information

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