Even after being simplified, modern awards continue to be a complex burden for many organisations.

Australia’s awards system can be something of a dangerous labyrinth. You can be unaware for years that your organisation has embedded an error – a misinterpretation of an award – into your payroll management system. When it’s finally uncovered, it can take a long time and a lot of money to correct your missteps.

This happens even to larger companies. In July 2018 cosmetics giant Lush committed to giving $2 million to current and former Australian workers after it found it had underpaid 5000 of them over an eight-year period. To accomplish this, it promised to upgrade its payroll system (for an estimated $1.5 million) and re-enter approximately 200,000 handwritten paper timesheets.

“Modern awards have been simplified to the point where all parties understand them more than ever before. But as awards are legal entities, the confusion comes in the interpretation and implementation of specific classifications for employees based on their skills and experience in different industries,” says Luke McCarthy, managing director of Industrial Relations Advisory Solutions, which assists employers in meeting their employment obligations.

“For example, the classification can be interpreted differently in a doctor’s surgery as opposed to an office or factory, and that may result in non-compliance and possible breaches.”

Small business burden

Modern awards are legal documents that specify the minimum pay rates and conditions of employment across more than 100 industries and occupations in Australia.

The Australian Industrial Relations Commission (now the Fair Work Commission or FWC) replaced 1560 state and federal awards with 122 modern awards with the enactment of the Fair Work Act in 2009. It sets out 10 National Employment Standards (NES) and a further 10 minimum standards included in modern awards (or the National Minimum Wage Order for employees who are not covered by an award or agreement).

While welcomed, this simplification didn’t end the complexity. Lush, for example, said the transition to the new system was the origin of its costly errors.

Small Business Association of Australia CEO Anne Nalder argues that modern awards are a particularly difficult burden for small business owners. She believes micro-businesses (those with 0-3 staff, including the owner) should be afforded more flexibility, given their size. She says awards are too regimented, and fines for breaches are very heavy.

“Too much compliance for hiring and firing is adding extra cost for small businesses and that is dissuading them from employing more people, which is leading to underemployment,” says Nalder. “There is also a need to ease up training and work experience to make it easier for young people to gain work experience, which is usually a prerequisite for most jobs.”

So can awards be improved? A spokesperson for the Australian Council of Trade Unions says, “The scope for genuine improvement of awards is limited, as the FWC now conducts reviews against set criteria rather than hearing claims based simply on broad merit arguments. The bar is set higher and reviews are just as likely to result in employees losing rights than gaining them – the penalty rates case being the prime example.

“Unions and employers generally agree that the process of reviewing or improving awards in the current framework has exhausted itself. The process has been resource-intensive, with little benefit. The government has passed a law discontinuing the award review process which recognised this consensus.”

Focus of reform

The main focus of potential industrial relations reform is enterprise bargaining agreements (EBAs) and the minimum wage, rather than modern awards that provide minimum standards for whole industries, says Raymond Markey, emeritus professor of employment relations at Macquarie University.

“EBAs cover almost 40 per cent of employees, about 22 per cent are solely award-reliant, and the remainder have individual contracts underwritten by the legislated NES,” says Markey.  “In recent years, the number of people covered by enterprise agreements has fallen because when employers can’t achieve their objectives in enterprise bargaining, they can easily get the agreement cancelled. Workers then revert to award-only coverage, which usually means significant reductions in wages and other conditions. This is one of the reasons why wages have remained so low.”

A look to the future

Speaking before the election, Markey speculated that a future federal Labor government may legislate to make it much harder for an employer to go back to an award if there is an enterprise agreement.

“It may also legislate for multi-employer agreements covering the whole industry – for example the hospitality industry which has many small businesses – and that will make awards less important. This was the situation in the 1990s before enterprise bargaining became so common and when awards were the sole way of determining wages and conditions.”

Given the victory for Morrison’s Coalition government, if this is to happen it won’t be for at least another three years.

Awards have remained a cornerstone of Australia’s industrial relations for over a century. For modern awards to remain relevant, they have to continuously adapt to the changing working landscape. They also have to embrace contemporary settings and advancements in technology which are making it possible to multitask and work from anywhere, at all hours, in many occupations and industries.

This is an edited version of an article that originally appeared in the May 2019 HRM magazine.