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Be prepared FOR THE IR CHANGES

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11 / Mar / 2010

The second phase of the Federal Government’s IR changes comes into force on 1 January and will usher in major changes. Robyn Anderson outlines the key elements and how they affect small business.
FROM JANUARY 1, 2010 new National Employment Standards (NES) and ‘Modern’ Industrial Awards will be introduced, further strengthening the rights of employees. This is the second phase of the Rudd government’s workplace reforms.

The NES will apply to all employees, regardless of industry, occupation or income and t will see high income earners receiving statutory entitlements that currently to not exist. Australian presently has over 4800 awards in operation; as of 1st January 2010, these will be disbanded.That’s right – every single current aware in Australia will be disbanded.

In their place will be around 100 new ‘modern’ awards. These ‘modern’ awards are argued as being more streamlined and will remove many state differences, which is a benefit for employers who operate nationally.

However there are also some important implications of these changes. The most worrying of these is that whilst there have been previous assurances from the Government that the modern awards will not extend to cover employees who are currently award-free, this appears to be incorrect as initial advice on some of the draft modern awards have seen some employees now falling into the award regime.

National Employment Standards (NES)

The NES include the following;

  1. The maximum weekly hours of work to 38 hours – The maximum hours per week for an employee will be 38 hours subject to ‘reasonable’ additional working hours. Averaging provisions may be included in the new ‘modern’ awards. The hours of award free employees may be average over a maximum of 26 weeks provided there is a written agreement with the employee allowing this.
  2. Flexible working arrangements for parents – An employee (with 12 months’ service) who is a parent or has a responsibility for a child under school age will be entitled to request a change of working arrangements in order to assist them to care for a child. This can include change in working hours, change in patterns of work and changes in location of work. If this occurs, employers MUST give a written response to the request within 21 days stating if they will allow/disallow the request and if disallowed, stating the reason for this. A refusal can only be on ‘reasonable’ business grounds. If this is challenged, then the matter can be referred to a third party who has the power to deem that the reasonable business ground are not sufficient, meaning that you may be required to allow it.
  3. Parental leave and related entitlements – Employees will have, as a minimum, should they chose, 12 months’ unpaid parental leave, but may request up to 24 months’ unpaid parental leave from their employer. Again, employers can only refuse on ‘reasonable’ business grounds. A 24 month absence may mean that employee may lose key components of their skills if the business’ processes change.
  4. Annual leave – Employees will continue to be entitled to 4 weeks’ paid annual leave per year.
  5. Personal /Carer’s leave and compassionate leave – Subject to any exra entitlement within an industrial award, employees will continue to be entitled to 10 days of paid personal / carer’s leave per year and 2 days’ unpaid carer’s leave for each occasion (subject to paid leave being exhausted). The statutory entitlement of 2 days’ aid compassionate leave per occasion also remains unchanged.
  6. Community service leave – This is a new statutory entitlement for many employees who are currently award free. An employee will be entitled to be absent from work to engage in prescribed community service activities such as jury service and eligible emergency services duties. This includes travel time and reasonable rest time following the activity. Community service leave is unpaid except in the case of jury service which continues to operate as per existing provisions.
  7. Long service leave – Employee rights under state laws are enshrined to ensure they cannot be bargained away.
  8. Public holidays – An employee is entitled to be absent from work on public holidays and to be paid for the ordinary hours that would have normally been worked at their base rate of pay. An employer is permitted to ‘reasonably’ request an employee to work on a public holiday. However, an employee may refuse the request if it is not ‘reasonable’ or if the employee’s refusal is ‘reasonable’.
  9. Notice of termination and redundancy pay – The NES will set out the base periods of notice in cases of termination as well as, for the first time, base statutory entitlements to redundancy pay. Employers will need to ensure that any notice periods in existing contracts do not fall beneath the new national standards. Employees over the age of 45 will also have a statutory entitlement to an extra week’s termination notice; this is an entitlement that was previously only given in award-covered employees and was not in national standards. The statutory entitlement to redundancy pay is also new for many employees. Employers who have less than 15 employees will continue to be excluded from the requirement to pay redundancy pay.
  10. Fair Work Information Statement – Employers will be required to give each new employee a ‘Fair Work Information Statement’ which contains information regarding the NES, Modern Awards, the right to freedom of association and the role of Fair Work Australia.

Award ‘Modernisation’

In addition to the NES, employers must make themselves aware of significant changes occurring within industrial awards. The traditional Sate and Federal Award structure which consists of over 4800 awards is being brought into the modern age with new ‘modern awards’ coming into place 1 January 2010. This will reduce the current number of awards down to around 100.

Employers will be required to not only adhere to the NES but also with the modern award applicable to their employees, which extend employees beyond the NES. Whilst there is an argument that awards will become simplified, employers will have to ensure their contracts or arrangements reflect the changes in the new awards. Failure to respond to changes in the award could mean you underpay or deny entitlements to employees, which would have your business at risk of complaints, disputation and investigations. Some of the items that will be covered by the ‘modern’ awards are minimum wages, ordinary hours of work, overtime rates, penalty rates and allowances, procedures for consultation and dispute settlement and industry specific redundancy schemes.

In September 2009, it was acknowledged that modern awards have the potential to increase labour costs for many businesses due to the re-introduction of penalty rate and other allowances for many businesses. There is also the potential for increased labour costs due to changes in wage rates. For this reason, some businesses will be able to “phase-in” the added costs over a five year period. The “phasing-in” provisions are set out in each modern award and are subject to a specific set of rules and conditions.

The ‘modern’ awards will provide for a level of flexibility via the use of a flexibility clause which will allow an employer and employee come to an alternate agreement regarding:

  • Arrangements for when work is performed
  • Overtime rates
  • Penalty rates
  • Allowances; and
  • Leave loading.

However there will be strict conditions for these ‘flexibility’ agreements and an employee cannot be coerced into signing an agreement nor can it result in an overall reduction in terms and conditions for the employee. In other words the flexibility agreement must result in the employee being better off overall than if no flexibility agreement were agreed to.

Flexibility Agreements must be set out in writing, signed by each party and state each and every term of the award that is being varied, detail in what way the term is varied and detail exactly how the employee is better off.

For example, take the common case of incorporating the leave loading into the hourly rate, it appears that this will need to be the subject of a flexibility agreement and therefore will need to be in writing in the format prescribed by the award. Verbal arrangements or simple one line arrangements in a letter of offer to an employee will not be permissible. Many employers will be ill-equipped to meet the stringent requirements of these agreements and may find themselves caught by this clause unless they get professional and informed advice.

The other concern is that either party may end the agreement by giving 28 days’ notice, whereby the employee will return to the full terms and conditions of the relevant modern award. On just what grounds an employer can terminate the agreement is unclear but it is of concern that an employer may restructure things to suit an employee and then be given only 4 weeks’ notice if the employee changes their mind and wants to go back to the award. This has the potential to impact other employees within the organisation.

Ref: my business magazine December 2009 / January 2010 issue

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