Key modern award changes – Shutdown periods and penalty rates for Professional Employees

Two major changes to modern awards will be implemented in 2023 including a revised approach to unpaid leave during temporary shutdown periods for 78 modern awards, and new penalty rates for employees working over 38 hours per week under the Professional Employees Award 2020.  

This is a timely reminder to employers to ensure that they are across and comply with the award that covers their business and employees.

New shutdown rules for 78 modern awards

From 1 May 2023, amendments made to 78 modern awards will commence, preventing employers from directing employees to take unpaid leave during annual temporary shutdown periods where annual leave entitlements have been exhausted.  

In August 2022, the Fair Work Commission (FWC) determined that certain awards required variation to meet the modern awards objectives under the Fair Work Act 2009 (Cth) (the Act). The Full Bench was concerned that the existing provisions provided an entitlement to take leave without pay, where an employee had not accrued enough paid annual leave to cover the period of the shut down.

The Full Bench found that a direction for employees to take a period of unpaid leave amounted to “standing down” an employee, a direction which can only be given under the limited circumstances in section 524(1) of the Act.

The Model Clause

In December 2022, the Full Bench prepared a model clause to replace the existing shutdown clause in the relevant modern awards. The model clause provides that employers who intend to shutdown their businesses for a period and have employees covered by any of these awards must provide:

(a)          employees with at least 28 days’ written notice (or a shorter period if agreed between the employer and the majority of affected employees); and

(b)          the written notice to any employee who is engaged after the notice is given and who will be affected by the period as soon as reasonably practicable after the employee is engaged.

If an employee has accrued annual leave

The model clause allows an employer to direct its employees to take a period of paid annual leave during a temporary shutdown period only if the direction is in writing, is reasonable and provided that the employees have accrued such an entitlement.

While the December 2022 decision did not clearly outline what is considered a reasonable direction, the Explanatory Memorandum to the Act provides that the following should be taken into account in assessing reasonableness:

(a)           the needs of both the employee and the employer’s business;

(b)           any agreed arrangement between the employee and the employer;

(c)           the custom and practice within the business;

(d)           the timing of the direction to take leave; and

(e)           the reasonableness of the period of notice given to the employee to take leave.

If an employee does not have sufficient annual leave

While an employer must not direct an employee to take unpaid leave during the shutdown period, the following can occur:

(a)          a period of unpaid leave can be agreed upon in writing between an employer and employee; or

(b)          an employee can come to an arrangement with their employer to take annual leave in advance of it being accrued (commonly referred to as taking “negative annual leave”).

Importantly, this means if an employee does not have sufficient accrued annual leave to cover the shutdown period, the employee may be entitled to wages during the shutdown period, if they do not agree to take unpaid leave or if the employer does not allow for annual leave in advance.

Key takeaways for shutdown periods

Practically, these changes do not prevent employers with annual temporary shut down periods from directing employees to take paid annual leave (in compliance with requirements in the applicable award).

Employers covered by these awards will need to comply with the new clause and its requirements when entering future arrangements for any shutdown period if employees do not have sufficient accrued annual leave. We recommend that employers accommodate these changes by:

(a)          monitoring the annual leave balances of employees throughout the year to anticipate whether employees will have sufficient annual leave balances for the shutdown period. Employers can make any necessary alternative arrangements with its employees in advance; and

(b)          updating any policies or contract clauses covering annual leave to reflect the changes, and ensuring HR managers are alerted to these changes.

A full list of the modern awards that will contain the new clause can be accessed here.

New penalty rates for Professional Employees

Separately, the FWC also issued a decision in January 2023 to vary the Professional Employees Award 2020 (Professional Employees Award). The Professional Employees Award covers employers engaged in the information technology, medical research, quality auditing or telecommunications services industries.

The FWC determined that the Professional Employees Award did not compensate for any additional hours worked by employees in excess of the minimum 38-hour work week, since the employees are paid an annual salary. The Professional Employees Award therefore failed to achieve the modern awards objectives.  

The FWC implemented eight variations into the Professional Employees Award. Notably, this includes a requirement to pay the appropriate hourly rate to employees for all hours worked in excess of 38 in a week, in addition to the minimum annual wages.

Importantly, employers will also be required to pay a penalty rate of:

(a)          125% for all hours worked (whether ordinary or overtime) before 6am or after 10pm Monday to Saturday; and

(a)          150% for all rostered hours worked on a Sunday or public holiday.

For casual employees, these amounts will be paid in addition to their casual loading.  

The provisions exclude employers paying penalty rates where the employer already pays to their employees an amount that is 25% or more above the minimum annual wage.  

In addition to existing record keeping obligations, employers must keep a record of all hours worked by employees in excess of 38 hours per week, or worked before 6am or after 10pm on any day Monday to Saturday, or worked at any time on a Sunday or public holiday.

Are you across the award applying to your business and employees?

When was the last time you reviewed the award applying to your business and updated employment contracts or policies accordingly? If you have any questions, or require any specific advice, on how these award changes will impact your business, please do not hesitate to contact a member of our experienced team.

Thank you to Siena Mills for her assistance in preparing this article.