Why Penalty Rates?

Why Penalty Rates?


The Federal Government has commissioned a review of the operation of the Fair Work Act 2009 by the Productivity Commission. The exercise promises to be far-reaching with the Commission scheduled to hand down its findings and recommendations in the second half of the year.

The “usual suspects” are lining up to push their favourite grievances; a particularly early start has been made by spokespersons for the Catering/Hospitality  and Retailing Sectors remorselessly pressing their case that penalty rates are an inhibition to profitability and therefore, the capacity of small to medium sized operators to employ greater numbers of staff.

Indeed, it is argued, that the penalty rates found in the relevant Modern Awards lead some business owners to either not trade or severely curtail their hours of operation on weekends and public holidays. This begs the question, why has the issue of penalty payments become so central to the profitability and growth of these significant sectors of the Australian Economy?

Reliance on Overtime & Penalty Rates:

The Australian Bureau of Statistics most recent data (from November 2012) highlighted the following:

  • Overtime payments accounted for 7.84% of average weekly cash earnings across all industries;
  • 7% of the 9.5 million employees who were single jobholders worked six days a week;
  • A remarkable further 4% worked on seven days per week;
  • 14% usually worked Saturdays;
  • 8% on Sundays;
  • With 29% working on both weekend days;

Concurrently, there has been a gradual increase in the casualisation of the workforce over the past three decades, with some sectors using “regular casuals” to cover between 30 – 40 percent of all hours worked. These workers receive a minimum of a 25% loading under Modern Awards; the interaction of casual loadings, penalty rates and overtime provisions are a nightmare for many business operators. To make matters worse, some awards contain either, or both, unclear or internally contradictory provisions, and are potentially the source of friction in the workplace.

Why Penalty Rates (?):

During contemporary debate on the issue of the extent and quantum of penalty rates, two schools of thought as to why we have penalty rates within our award system have been to the fore.

As mining billionaire, Clive Palmer put it on national television several months ago:

“… at my Coolum Resort, we pay penalties to reward staff for their extra efforts over peak periods.”

This echoes the thinking of peak employer groups and some sections of the current federal government that penalty rates and ‘productivity’ are intrinsically linked.

The alternative view is that penalty rates protect/compensate employees for ‘isolation/alienation  from their community and family’. This approach reflects the historical development of penalty rates during the period of the largely fulltime and male dominated workforce of the early twentieth century; a workplace relations environment that saw very different ‘norms’to those applying currently, including:

–          An average working week of 44 hours over five and a half days of the week;

–          No paid recreation leave and very little paid sick leave;

–          Little or no retail activity on Sundays or Public Holidays.

This was a period when the community was more ‘family focused’, with regular and routine religious observance by many on Sundays, and a hospitality sector significantly more restricted in trading hours and practices by licensing laws, with amusement and entertainment opportunities far less diverse than today (e.g; it wasn’t until the early 1970’s that cinemas generally were permitted to screen on Sundays, and then only after midday!!).

Penalty rates were a deliberate impediment to employers making demands upon their workforce’s limited opportunities to interact with their family, friends and community.

FWC’s current thinking:

Recently, a full bench of the Fair Work Commission handed down a decision relating to a series of issues including penalties and casual loadings impacting upon the operation of the Restaurant Industry Award 210. The matter was brought by the Restaurant and Catering Association of Victoria (RCAV), who was seeking a reduction in Sunday penalty from 50 to 25%.

The full bench determined:

–          “The RCAV’s case that the reduction in Sunday penalty would have significant benefits for employment and business turnover was not made out. Employment in the restaurant industry has consistently been growing strongly over the last two decades, and has continued to grow since the Restaurant Award was made. It is accepted however that Sunday penalty rates may have a limited effect on employment, particularly in relation to owner-operators working on Sundays in preference to engaging staff for additional hours.”

–          The RCAV’s case that, as a general proposition, the level of disability for working on Sundays is no higher than that for Saturdays is rejected. The position has not changed since a Full Bench of the A.I.R.C considered this issue in 2003. Working on Sundays involves a loss of a day of family time and personal interaction upon which special emphasis is placed by Australian Society.”

 At first blush it appears as though the decision favoured the “conventional” view repeatedly expressed by the A.I.R.C and more recently the FWC in regard to the reward/compensation for working “unsociable hours” (that would seem to reinforce the need for the strategy of the Federal Government in attempting to by-pass the FWC through recourse to a Productivity Commission Review); however the Full Bench’s thinking went one step further.

In a significant departure from the convention of the ‘universality of penalty rates’ the Commission found that:

“Although a 50% Sunday penalty rate is generally appropriate for employees under the Restaurant Award, for transient and lower-skilled casual employees working mainly on weekends who are primarily younger workers, the superimposition of the casual loading of 25% in addition to the 50% penalty  tends to overcompensate them for working on Sundays and is more than is required to attract them for work on that day.”

 Therefore, for the very first time, a Full Bench has qualified the right to penalty payments in terms of both the status (casual/transient/younger) and seniority (lower skilled) of employees.

The impact of this decision has seen the door left ajar for a slew of applications from employers across a wide-range of Sectors seeking similar or greater concessions; likely to coincide with the Productivity Commission Hearings, thereby creating an environment which may embolden the Federal Government to make complementary amendments to the Fair Work Act.

We indeed live in interesting times.

Michael Taylor

Principal Consultant

HMT Consulting
P.O Box 1324,
Mooloolaba, Qld, 4557
Phone/Fax: (07) 54444341: Mobile: 0419-240523
Email: hmtconsulting@optusnet.com.au

In summary the services that HMT Consulting can provide include:

  • Assistance with the development of general Workplace Relations Policies & Procedures (including Workplace Bullying):
  • Delivery of a summary presentation on new legislative requirements to Management & Staff:
  • Development of enterprise specific wages & conditions packages:
  • A review of existing (or proposed) employment contracts to ensure compliance:
  • Representation before the Fair Work Commission  and or the Workplace Ombudsman (e.g; in relation to wrongful dismissal or General Protections claims:
  • Advice on Performance Management & discipline:
  • Assistance with Award compliance.

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Tail Lights by Georgina Pratten