Transitional Provisions in Modern Awards

Written on the 1st of July 2010 by Andrew Bull

From 1 July 2010, transitional provisions that are contained within most Modern Awards commence for most national system employers and employees. However, if you have only just become a national system employer from 1 January 2010 as a result of the NSW government handing back its industrial relations powers to the Commonwealth, then you will remain subject to the relevant pre-modern (state) award (now known as a “Division 2B Award”). Division 2B Awards remain in operation until 31 December 2010 and therefore employers who are covered by one of these awards will not become subject to modern awards until 1 January 2011.

Division 2B Awards will not only continue to apply to businesses that were subject to pre-modern (state) awards as at 31 December 2009, they will also continue to apply in cases where a transfer of business to an incorporated entity has occurred post 31 December 2009. This is because a Division 2B Award is a transferrable instrument and transfers with the work. For example, if the business was operating as a sole trader and then incorporated on a date on or after 1 January 2010 yet carried on the same business with the same employees, then the relevant Division 2B Award will transfer with the work and remain applicable to any transferring employees.

By the end of 2009 more than 1500 state and federal awards were reviewed and 122 industry and occupation “modern awards” created. These modern awards commenced on 1 January 2010 but most include transitional provisions to “phase in” changes in wages, loadings and penalties that have resulted from the consolidation process.

The transitional provisions in modern awards enable employers to phase in increases or decreases in certain monetary entitlements in five set instalments over four years (20% per year) beginning from the first full pay period on or after 1 July 2010 and ending at the first full pay period on or after 1 July 2014, when modern award rates apply in full.

This is not as simple as it seems and employers need to be aware that the phasing arrangements do not just apply to minimum wages (including any industry allowances), they also apply to:

- casual and part-time loadings;
- Saturday, Sunday and public holiday penalty rates;
- evening and other penalty rates; and
- shift allowances

Note: Overtime provisions and allowances are not included in the phasing arrangements and came into full effect from 1 January 2010.

The process is further complicated by the fact that the first and subsequent calculations will need to include any minimum wage increase handed down by Fair Work Australia (“FWA”), the first of which was a significant increase of $26 per week to apply from the first full pay period on or after 1 July 2010.

As a first step, the dollar difference between the pre-modern award rate for the employee’s classification and modern award wage rate for the employee’s classification (including any industry allowances), as at 1 January 2010, is calculated and preserved as the “transitional amount”.

The following percentages of the transitional amount can be added or subtracted from the dollar modern award rate that applies from 1 July each year (including any annual wage increases).

 Note:

• Where the modern award rate (including any increases from FWA’s annual wage review) is lower, the minimum wage rate is obtained by adding the proportion of the transitional amount.

• Where the modern award rate (including any increases from FWA’s annual wage review) is higher, the minimum wage rate is obtained by subtracting the proportion of the transitional amount.

• If the modern award rate is lower and the transitional amount is equal to or less than the amount of an increase in the modern award minimum wage resulting from FWA’s 2010 annual wage review, the increase cancels out the transitional amount and phasing is not required.

In this article, the example below shows how the phasing arrangements work in relation to a difference in hourly rate. Further examples in future articles will show how the phasing arrangements work in relation to penalty rates, loadings and shift allowances.

Example- Difference in hourly rate

Bob’s pre-modern award wage rate is $16.25 per hour. His modern award rate is $18.25 per hour. The “transitional amount” is therefore $2.00 (the difference between the old and the new wage rates).

2010 wage rate:

On 1 July 2010, 80% of the transitional amount should be subtracted from the modern award rate (including FWA’s annual wage increase for 2010) to obtain Bob’s minimum wage entitlement for this year.

FWA makes an annual wage increase of 0.69c per hour for the 2010 year. Bob’s modern award rate would therefore be $18.94 in this situation.

$18.94 (modern award rate) - $1.60 (80% of the $2 transitional amount) = $17.34

Therefore, from the first pay period on or after 1 July 2010, Bob’s minimum wage rate will be $17.34 per hour.

2011 wage rate:

On 1 July 2011 60% of the transitional amount should be subtracted from the modern award rate (including the latest annual wage increase) to obtain Bob’s minimum wage entitlement for that year.

FWA makes an annual wage increase of, for example 0.30c per hour for that year. Bob’s modern award rate would therefore be $19.24 in this situation.

$19.24 (modern award rate) - $1.20 (60% of the $2 transitional amount) = $18.04

Therefore, from the first pay period on or after 1 July 2011 Bob’s minimum wage rate will be $18.04.

• The same process using the appropriate “transitional proportion” (i.e. 40% in 2012 and 20% in 2013) applies to determine the wage rates in 2012 and 2013.
• Employers may choose to apply the higher amount in the modern award in full (i.e. $18.94 per hour) from 1 July 2010 rather than phasing in the increase as set out above.

Remember, this process applies to you even if you have an operative enterprise agreement in place. While the agreement means that the modern award does not apply, the rates in the agreement cannot be less than the minimum wage rate provided for in the modern award.

To assist employers further, Fair Work Australia has launched its pay rates calculator which employers can use to calculate transitional rates of pay including any penalties and allowances. However, it is important to enter the correct information about your employee’s pay details, otherwise you could end up with the incorrect pay rate.

The calculator can be found by clicking here.






Disclaimer - This article is offered for general information purposes only. It is not offered as and does not constitute specific legal advice or opinion. The accuracy of the information is not guaranteed. You should not act or rely upon any of the information contained within this article without seeking the advice of a qualified solicitor who specialises in the particular area of expertise and jurisdiction that you require.