Fair Work Australia rules on overtime and overaward payments

The phasing-in arrangements for monetary obligations in Modern Awards began on 1 July 2010.  As advised in our November 2009 Briefly, while the majority of Modern Award provisions commenced on 1 January 2010, provisions relating to minimum wages, penalty rates, shift allowances and loadings were deferred until 1 July 2010.  These provisions are now subject to complex phasing-in arrangements which will continue until 2014.

In June 2010, the Full Bench of Fair Work Australia (the Full Bench) made rulings regarding the implementation of two key transitional provisions which are contained in the majority of Modern Awards now in operation.

The matters considered by the Full Bench were:

• whether overtime entitlements are subject to the phasing-in arrangements under the transitional provisions; and
• whether increases in monetary obligations owed by employers to employees under Modern Awards could be absorbed into existing overaward payments.

Overtime

There has been some confusion as to whether the phasing-in arrangements contained in Modern Awards applied to the payment of overtime.  Before the Full Bench, the Australian Manufacturing Workers Union argued that overtime was a ‘penalty payment’ to which the phasing-in arrangements should apply. 

The Full Bench rejected this submission.  They considered that the clear intention of the former Australian Industrial Relations Commission, in drafting Modern Awards, was to exclude overtime from the matters subject to the phasing-in arrangements on the basis that the greater the number of matters subject to phasing-in, the greater scope for complexity and employer confusion.

As such, Modern Award overtime provisions have applied since 1 January 2010 and employers are required to pay overtime at the rates specified in the relevant Modern Award. 

Absorption

Modern Awards contain a clause which allows for the absorption of monetary increases payable by employers into overaward payments (the Absorption Clause).  The Absorption Clause provides that:

‘The monetary obligations imposed on employers by this award may be absorbed into overaward payments.  Nothing in this award requires an employer to maintain or increase any overaward payment’

In our May Briefly, we advised that the Fair Work Ombudsman’s position was that overaward payments can satisfy award entitlements so long as it was expressly stated that the overaward payment was made in recognition of a particular award entitlement.  In essence, an employer and employee have to agree to the overaward payment which offsets the award entitlement.

The Full Bench expanded on this approach, such that an employer can make overaward payments to absorb a monetary increase due under a Modern Award, without express agreement of the employee. 

We note that, where a specific contractual arrangement already exists that requires an employer to maintain an overaward payment (i.e. where an employer agrees to pay an employee 20% above the award rate), the default Absorption Clause of the Modern Award will not apply.  Employers should also consider what overaward payments they are making to an individual employee before deciding to absorb a Modern Award monetary increase.

However, the Full Bench also noted that its decision was not intended to interfere with previous Court authorities regarding the use of off-set clauses.  As such, where an employer seeks to make an overaward payment in lieu of a specific award entitlement, the approach discussed in our May Briefly should continue to be adopted.

Please contact Sathish Dasan, Partner at Norman Waterhouse Lawyers, if you seek advice on the specific implications of this decision on your business.

Sathish can be contacted by telephoning 8210 1253 or mobile 0412 823 850, or by emailing him at sdasan@normans.com.au

If you find the information in this article useful, please feel free to forward it to someone at your workplace.

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