The Fair Work Act commenced on 1 July 2009 and requires all businesses to comply with a safety net of minimum employment conditions including the National Employment Standards (NES) and “Modern Awards”

Modern Awards were introduced in 2010 and were phased in to allow businesses time to comply. These transitionary arrangements have concluded and the Awards now have full-effect, so it is essential that employers are very clear about their obligations.

Modern Awards cover most employers and employees in Australia and outline specific entitlements and conditions that apply to employees.

Even if you already pay above Award rates and provide great workplace policies for your team, you may no longer be meeting your obligations.

Award Flexibility means that some entitlements can be varied, but if it isn’t done correctly, and clearly documented, then employers risk additional costs and possibly fines.

Annual Leave as an example.

Modern awards generally provide for employees to have access to a 17.5% annual leave loading. That is, when on annual leave, an employee is entitled to be paid an additional loading of 17.5%. This might equate to around $500 per employee per annum.

Here is an example clause from the Hospitality Industry (General) Award 2010:

“34.2 Payment for annual leave

The NES prescribes the basis for payment for annual leave, including payment for untaken leave upon the termination of employment. In addition to the payment provided for in the NES, an employer is required to pay an additional leave loading of 17.5% of that payment.”

Some employers already pay the 17.5% loading on top of paying the appropriate (minimum) rates prescribed in the Award;

Some employers continue to pay the 17.5% loading even though they pay rates of pay that are above the minimum rates prescribed in the Award (known as over-award rates);

Some employers pay over-award rates and do not pay the 17.5% loading on annual leave.

As the Awards now have full effect, even if employers pay over award rates, they are obliged to pay the 17.5% loading on annual leave unless there is something in writing that states that the loading is included in their over award payment.

Recent cases before the Fair Work Ombudsman have required employers who had thought they were doing the right thing by their staff to make this payment on current leave entitlements as well as on accrued leave entitlement’s when an employees employment is terminates.

We recommend, where an employer pays above award rates, that for all new recruits, they include a clause in the contract that states:

"The remuneration and other benefits provided to you by the Company compensates you for all entitlements or benefits you may have pursuant to any award, or other industrial instrument. This includes, but is not limited to, payments for reasonable overtime, weekend and holiday loading, allowances, travelling expenses, penalty payments, and any other entitlement, unless specifically noted in this Agreement.

Accordingly, there will be no additional payment during periods of annual leave or for overtime payments for said reasonable additional hours or any other entitlement outlined in any award, or other applicable industrial instrument."

In certain circumstances, employers can remove the risk of having to pay additional entitlements for current staff at salary review time or through a confirmation of employment letter.

Where employers currently pay annual leave loading, we sometimes suggest that employers “buy out” this entitlement and wrap it up into the annual salary. Not only does this highlight the actual amount paid to the employee, but it avoids the accrual over time of the loading along with annual leave.

As well as annual leave, there are a large number of other things that employers need to be aware of in Awards, including fines that can be applied for breaches.

Understanding your obligations is critical, as is documenting your practices appropriately.

Often, the cost of ensuring you comply is negligible, but the costs of fines and back-pay can run into tens of thousands of dollars - or more.