Penalty Rate Changes

Posted on April 8, 2017 Under All, Comment 0 Comments


It is estimated that 800,000–900,000 workers, will be impacted by the Fair Work Commissions’ (FWC) decision to reduce weekend penalty rates by 25%-50% (depending upon the industry) over the next 5 years. While there is highly persuasive evidence offered by the Productivity Commission and businesses showing this decision will increase employment and economic activity on Sundays, the adverse impact upon many low-income individuals and families cannot be ignored. The arguments for and against the decision are at times hollow, and overly politicised. This article attempts to avoid this debate, but to consider why many employees are so reliant upon penalty rates, when often they don’t work for workers. Ultimately, penalty rates have become the inflexible standard, and not the low minimum conditions they are intended to be.

Penalty rates were first implemented to compensate workers on weekends for missing out on church and other family commitments. However, church attendance is almost a third of what it was 50 years ago, now at 15%. Considering Australia’s current diversity, it seems natural that individuals would have different lifestyle priorities existing throughout the week. Why then is Sunday still held in such high regard? Many people, who study, play sport, travel, and care for family members, may do so on days other than Sunday. For example, there is a higher cost for a university student to work on a Monday when they have class, than on a Sunday when class is off. For families, a parent may wish to work on a Sunday morning, while the other parent supervises young children. This may be far more convenient and cheaper than working a weekday afternoon shift, and requiring expensive child/afterschool care. While yes, the university student may have assignments or social commitments on Sunday and both parents may want to go to church as a family or fulfil other commitments, these rudimentary examples show that Sunday, for many people, may not be the most inconvenient day to work. For many individuals working penalty rates, but not forgoing a valuable personal commitment, their penalty rates effectively are higher wages, at a very convenient time.

Currently approximately 80% of the over 2 million workers paid at the ‘award only’ (meaning 10% of employed Australians are on minimum conditions and wages) are either casual or part-time employees. This 80% includes people explicitly impacted by the reduced rates, who receive the minimum wage, but also hundreds of thousands of weekend workers employed subject to an Enterprise Bargaining Agreement (EBA). These are essentially employment contracts negotiated between employer and employee groups outlining an alternative award. These must pass a ‘better off overall test’ in comparison to the relevant award, as decided by the FWC. Coles, McDonalds and many other large companies’ employees are subject to these conditions, with many already not allowing penalty rates, or be it to the full extent as provided at award. As these conditions are based on the award, upon expiry of the EBAs they will almost certainly be re-negotiated down closer to the latest, lower conditions, as has been alluded to by an opposition spokesman. These employees are not paid primarily with reference to their contribution towards revenue or their value adding to the company. Nor are they paid in relation to their forgone family time, or childcare payments, or other emotional and personal costs incurred when working. With 10% of Australian workers sitting on bare minimum conditions, and many not much better off on EBA’s it is clear that this award wage is now the standard.

It is this standard which is often a business’s first resort in determining what wages to pay, particularly lesser skilled workers. As all businesses operating on weekends have unique cost structures and revenue levels, it is impossible that the FWC’s industry specific awards are an accurate representation of an employer’s true value of hiring a worker. Currently, for businesses where the cost of hiring an employee on the weekend at the award is too high to benefit the business, they will either hire less, the owner will operate the business alone, or not open at all. For these businesses, they may only be able to afford penalty rates on busier days during the week. Businesses however, where the same cost is much lower than the award, can afford to pay employees more, but largely don’t. These businesses are under no legal obligation to pay higher than the minimum, and in these predominantly larger firms, bargaining power is skewed towards the employers, so why would they pay more?

This lack of equal bargaining status means employees are unable to negotiate more personalised conditions. For example, what day their penalty rates should be during the week to truly capture the cost of working at inconvenient times. Or with a more equal bargaining position, feel confident to request that pay be (even only slightly) more related to value added and effort put into the business without fear of being dismissed or rostered on less. The inability of Australia’s current labour market system to facilitate such negotiation has led to this standardisation of the award.

As an employee’s capacity to effectively bargain diminishes, the less their wage represents a product of true personal cost and contribution to a business, and their pay rates will decrease down to the minimum. This, among other factors, is one of the reasons so many people are effected by the FWC’s decision. As they sit on minimum conditions, when the conditions fall, it is only natural their wages follow.

Businesses cannot really be blamed for this however. For most, their primary purpose is to make money, and why would they pay more than they had to at the minimum wage? This is unless there was pressure by an employee reasonably requesting (not extorting) for greater pay or more personalised conditions. As outlined, minimum wages, and rigid penalty rates either advantage or disadvantage both employees and employers. If our Industrial Relations system was able to foster such negotiations, the standard of employment conditions would be lifted well above the minimum, lessening the impact of shocks, like the FWC’s decision, upon some of the lowest paid workers in Australia.