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How Will The Penalty Rate Changes Impact Your Business?

Published March 6, 2017 (last updated on February 28, 2024) | Adam Wyatt - Content Writer


Since the Fair Work Commission (FWC) announced a reduction in Sunday and public holiday penalty rates for the hospitality and retail industries, the topic has brought about polarising commentary around the nation.

Penalty rates have long protected the Australian weekend. For more than one hundred years, they have incentivised irregular hours of work and compensated employees for their time apart from family and friends. Whichever way you view the decision, there is no doubt that penalty rates continue to have a legitimate role in compensating employees for working long hours or working at asocial times.

Change Instigated By Change

Regardless of your position on the changes, we need to acknowledge that penalty rates are not set in stone. They must always be subjected to review; particularly as society changes.

It is often argued that penalty rates no longer serve the function they once did in attracting labour to work during unattractive, unsocial hours, since, as a result of changes in the composition of the workforce, reductions in the length of the standard working week and working year, and growth in unemployment, the hours preferences of employees have changed.

The FWC decided that the existing Sunday penalty rates in the Hospitality, Fast Food, Retail and Pharmacy Awards do not achieve the Modern Awards objective, as they do not provide a fair and relevant minimum safety net.

Some small business owners argue they cannot open on Sundays due to the high cost of wages for employees and therefore small margins – yet consumers demand for businesses to operate seven days a week. Others have argued that high penalty rates reduces business profits and increases costs to government, reducing the demand for labour and productivity across the Australian economy. However, when we compare Australian penalty rates with comparative markets such as Canada, the UK and even New Zealand – we are already leading the way.

Impact Of The Reduction Of Penalty Rates For Employers

We are being bombarded with rhetoric from politicians, unions, employers and employees about the impact of reduced penalty rates and therefore it can be easy to misinterpret what it all means and the impact it will have.

Whether the changes will impact your business will depend on whether your business has employees covered by any of the Modern Awards impacted by the FWC decision. The reduction in Sunday and public holiday penalty rates only applies to the following Modern Awards:

  • Fast Food Industry Award 2010

  • General Retail Industry Award 2010

  • Hospitality Industry (General) Award 2010

  • Pharmacy Industry Award 2010

  • Restaurant Industry Award 2010

A summary of the benefits for the small business owner:

For many business owners operating with the relevant Awards, the penalty rate changes are well received.

  • It will allow employers to hire more staff

  • More hospitality venues will be able to operate on Sundays

  • It will provide a better experience for customers with more staff and availability of entertainment and hospitality venues

  • Businesses would make more money from the increased opening hours and increased staff levels

  • More money available to re-invest into the business

Impact Of The Reduction Of Penalty Rates For Employees

Much of the political controversy surrounding the decision to cut penalty rates is due to the fact that many impacted employees “earn just enough to cover weekly living expenses,” the FWC noted in its summary decision. “Saving money is difficult and unexpected expenses produce considerable financial distress. The immediate implementation of the variations to Sunday penalty rates would inevitably cause some hardship to the employees affected, particularly those who work on Sundays.” The FWC also noted that those most affected would be “non career” workers — casual and part-time workers (Level 1) and largely young workers. Managers’ pay rates (Level 2 and 3) would not be affected. For this reason, many oppose the changes because it is an implicit failure to protect the already low paid.

Yet for some employees in the retail and hospitality industry, there may be no reduction in penalty rates at all. This is the case for large retailers such as Woolworths, Myers, Coles, Bunnings, Kmart and Target, or any business that has entered into an enterprise agreement with the retail union — the Shop, Distributive and Allied Employees’ Association (SDA).

Also potentially unaffected, are employees that have an employer that may choose not to reduce pay rates on Sundays and public holidays to the minimum amount provided in the relevant Award; but instead retain their existing rates of pay above the minimum rates. There are a number of businesses who have already announced their intention to maintain penalty rates above the minimum requirements in an act of goodwill to their staff. This serves as a good reminder, that the FWC sets out the minimum requirements for wage rates, employers can adopt higher rates, yet nothing less than those stipulated as the minimum requirement.

What Are The Changes And How Can Business Owners Ensure They Are Compliant?

In relation to taking action, the important thing to keep in mind is that these changes are not going to take effect tomorrow. The FWC has stated that the changes will be phased in to reduce their impact.

The reduction to public holiday penalty rates under the relevant Awards will take effect on 1 July 2017. As for Sunday penalty rates, one of the options proposed by the FWC to phase in the reductions is through a series of annual adjustments on 1 July each year (commencing 1 July 2017) to coincide with any increases in Modern Award minimum wages arising from Annual Wage Review decisions.

As to the number of annual installments, the FWC has suggested that it is likely that at least two installments will be required. The period of adjustment required will depend on the extent of the  reduction  in  Sunday  penalty  rates,  the  availability  of  ‘take  home  pay orders’ and the circumstances applying to each Modern Award.

Once there is greater certainty around the specifics of the arrangements to phase in the changes to penalty rates for the relevant Awards, Employsure will let impacted clients know what these changes will mean in practice and what the new rates to pay will be.

What are the changes?

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