Employee Relations - Modern Award Transitional Provision

Confused about the transitional provisions in your Modern Award? If you are not its time check that you have calculated the correct wages payment – it is a very complex area with employers unknowingly miscalculating employee wage and penalty entitlements.

A small business recently discovered it was obligated to pay back thousands of dollars to employees after incorrectly applying the very complex transitional provisions in their Modern Award. Moving from the NSW Award the company had paid their employees 80% of the Modern Award rate which was well below the required transitional rate which is based on the difference between the two old and new Award rates of pay.

The transitional provisions allow an employer who is moving from a State Award/old Federal Award with lower wage rates to the higher rates in the Modern Award – to step those increases. (There are some exceptions to this where the Modern Award is lower than the previous Award however employers who attempt to reduce their wage rates run the risk of a ‘take home pay order’ from Fair Work Australia.) Where, as in most cases, the Modern Award rate is higher employers must progressively move towards the new Award rate of pay as per the transition process in the Award. This means progressively reducing the differential between the Awards rates of pay. Depending on the Award this may also involve certain penalty rates where they change – for instance where a shift penalty has moved from 20% in the old Award to 30% in the Modern Award. Unfortunately, given the variation in transition provisions, it is not possible to provide a detailed analysis here that applies to everyone.

Employers are reminded that the Modern Award rate will increase on 1 July each year as per the Annual Wage Review Decision. This means that employers will need to recalculate the transitional difference when this occurs and increase their wages accordingly.

One aspect of the transition process in favour of employers is that any Award increases may be absorbed into existing overaward payments. This means that you do not have to maintain the pre-existing overaward margin when moving to the new Award: but you cannot pay less than the new Award wage rate.

Every newsletter Hunter Employee Relations will provide a new topic of (necessary) interest to small business employers. Industrial relations is becoming overly complex/regulated in Australia – unfortunately this does not provide employers with any kind of excuse from the Fair Work Ombudsman. If there is a particular topic you want discussed here please let Macmillans Waller Fry - Accountants know and we can cover it.

Michael Schmidt is the principal of Hunter Employee Relations. Hunter Employee Relations provides a range of assistance services to employers including employee relations compliance audits, managing disciplinary and termination matters, developing staff employment contracts, Award interpretation and setting up enterprise agreements.