‘Penalty rates’ has always seemed like a loaded term. Does the ‘penalty’ apply to the employees working evenings or weekends, or to the employers paying the higher wages?

Penalty rate payments, currently set by the Fair Work Commission, have for three decades been a bone of contention between employers – particularly in the hospitality and retail industries – and employees.

The government recently threw its weight behind the business lobby, calling for a review of rates for Sundays and public holidays. “We can’t go on in a society where we are charging people on a day which is a normal operating day, double what you would on any other,” assistant infrastructure minister Jamie Briggs told a small business audience. But he conceded that changes would happen only if society was willing to have the debate.

Penalty rates in retail and restaurants are typically 25 per cent extra for Saturdays and 50 per cent extra for Sundays. Health workers get 50 per cent for weekend work.

The Australian Council of Trade Unions (ACTU) estimates that changes to penalty rates would affect 4.5 million workers.

Modern awards update

The Fair Work Commission’s latest four-yearly review of modern awards began on 1 January last year, with an examination of penalty rates as part of its remit.

It’s not clear yet whether the government expects the commission to come up with a new penalty rate structure or wants it to express a view on whether rates should be reformed, says Charles Power, a partner at dispute resolution, litigation and workplace relations specialist Holding Redlich.

“You could have flexibility built into penalty rates that leaves workers no worse off in an overall sense, or a situation where workers’ take home pay is less by the stroke of a pen,” he says.

Incremental changes to penalty rates are likely, he says. But he doesn’t believe the Australian public will support the reduction of take home pay for retail and hospitality workers.

The Government is certainly treading cautiously after voters resoundingly ditched the Howard government’s Work Choices legislation. In the run-up to the next election, the government will have a keen eye on how business is butting up against the unions on the issue.

In a recent Federal Court case, for example, the hospitality industry scored a victory against United Voice, a union representing about 120,000 hospitality workers, which had appealed against a Fair Work Commission ruling to allow a reduction in penalty rates.

Restaurant and Catering Australia CEO John Hart claimed the result would “save restaurants around $120 million a year and allow businesses to stay open”. But according to Australian Bureau of Statistics figures, restaurants are already doing quite well. The sector is twice as profitable as it was 15 years ago, with employment climbing 9 per cent in five years.

But Peter Strong, CEO of the Council of Small Business Australia (COSBOA), says the situation is about much more than figures. “It’s about business, profitability and community,” he says. “If a business is unprofitable on a Sunday because the penalty rates are too high, it closes. That means one more person out of a job. So penalty rates end up having a huge impact on the social nature of communities.”

Personal choice factor

Penalty rates is not an issue that lends itself to a one-size-fits-all approach, says Stephen Smith, director national workplace relations at the Australian Industry Group.

“There are big differences between industries regarding the rates paid,” he says. “The fast food industry, for example, has a high proportion of young people, and they’re only available to work outside school or university hours.”

Smith suggests evening and weekend hours suit many younger employees, and the fast food industry, which includes many franchise businesses, is struggling to meet higher wage costs.

Strong says that, regardless of the hours worked, small businesses open on a Sunday need to be profitable, and this means everyone needs to be happy with the penalty rates paid.

The idea that working unsocial hours is a matter of personal choice, rather than people being compelled to work by economic necessity, is challenged by new research by the University of South Australia’s Centre for Work and Life. In its annual Australian Work and Life Index survey of nearly 2700 people, penalty rates were given as the prime motivation for people choosing to work unsocial hours.

More than half of those working unsocial hours didn’t receive any penalty rate payment at all. And of the 46 per cent who did, more than a third said they relied on the extra pay to cover household expenses.

“It appears that workers in the agriculture, forestry and fishing industries, and in electricity, gas, water and waste services, are more likely to have their household finances affected by a removal of penalty rates for working unsocial hours,” says Dr Tom Daly, the survey report’s author.

While some people may choose to work unsocial hours, it’s far from a matter of choice for others, says Clare Ozich, executive director of the Australian Institute of Employment Rights. “Some people are compelled by the labour market, particularly in big workplaces where they don’t have the same power to refuse, or work unsocial hours because of their economic circumstances,” she says.

Daly says cutting penalty rates could have dire consequences for the labour market, with employees saying they would refuse to work unsocial hours. In retail, 48 per cent say they would stop working weekends and evenings. Construction and manufacturing workers are the least likely to continue working if penalty rates were removed.

Profit and growth

With the ABS reporting in 2013 that 40 per cent of Australians had some form of non-traditional work pattern, it seems the 24/7 economy is already upon us. This is key to the business argument that weekends are no longer ‘special’ and therefore don’t constitute a sacrifice.

COSBOA’s Strong says that the ideal scenario for small businesses is one where penalty rates become a maximum time and a half for any work performed. “The complicated world of penalty rates dependant on different hours and times worked isn’t sustainable. We need to be practical and realistic,” he says.

Two years ago Australia’s major banks pushed for a ‘notional’ weekend where employees could be rostered to work any five days of the week. The banks argued that, although they were in the same position as telecommunications service providers and retailers, they didn’t have the flexibility to roster employees for Saturdays and Sundays.

Employers in the retail, hospitality, food and beverage, and hair and beauty industries claim weekend work free of penalty rates would have a positive impact on employment growth, productivity and competitiveness.

“The ultimate goal is to have Sunday penalty rates similar to those on Saturdays,” Australian Chamber of Commerce and Industry CEO Kate Carnell told the ABC.

The ACTU rejects these arguments, claiming the business lobby’s motivations have nothing to do with job creation and are all about boosting employer profits. “Employers couldn’t provide evidence to the commission that more people were employed when penalty rates were removed or reduced in New South Wales, Victoria and South Australia in the past,” says ACTU secretary Dave Oliver.

To date, the commission hasn’t been convinced either. It has noted that a large proportion of employees receiving penalty rates are already on low pay, with incomes of around 70 per cent of average earnings.

Whether there’s an appetite among the Australian public to tackle the issue once more will be revealed this year.

This article is an edited version. The full article was first published in the March 2015 issue of HRMonthly magazine as ‘What’s a weekend worth?’ AHRI members receive HRMonthly 11 times per year as part of their membership. Find out more about AHRI membership here.