Locked and loaded: FWC approves changes to the Hospitality Award
Elly Kimberly, Lina Allahwala with Natalie James

Locked and loaded: FWC approves changes to the Hospitality Award

We’ve been talking a lot about flexibility in the award system recently. And the motivation to get more of it following the Government's request to the Fair Work Commission (FWC) to increase 'the flexibility and efficiency of the industrial relations system, while maintaining appropriate safeguards’.[1] ?A timely request, which has had an encouraging response from the FWC and the traditional industrial relations parties, informed no doubt by pandemic driven shifts in business' needs and mindsets.

First, there was the retail part time overtime change, then exemption rates in the restaurant award and more recently, a provisional view about loaded rates in the hospitality award.

Most recently, on 3 September 2021, the FWC approved the variation to include loaded rates in the Hospitality Industry (General) Award 2020 (Schedule K).

There can be a tension between the call for flexibility and concerns to protect employees, with employee advocates wary that simplification equals reduced safeguards

In this case the Australian Council of Trade Unions and United Workers Union challenged the premise that loaded rates reduced complexity, asserting ‘it is inconceivable that the loaded rates scheme…results in the simplification of payroll processes’.[2] Hmmmm.....given businesses have been rolling up rates in an adhoc and often non-compliant ways for years, I'm not sure the unions have read the room right here......

How do the loaded rates in ‘Schedule K’ work?

The premise is simple – pay an employee a percentage above their ordinary hourly rate to replace paying them a series of individual allowances (overtime, split shift allowance, and penalty rates (except public holiday rates)).

So for example, if you had a full time Level 3 employee working 45 hours per week, Monday to Friday, you could pay that employee a flat $26.30 for all 45 hours. Without a loaded rate, you would be paying the employee $21.92 for their first 38 hours, then $32.88 for 2 hours (hours 38 – 40), then $43.84 for 3 hours (hours 42 – 45). That’s three sets of calculations for one employee for one week, versus one.?

The idea behind the loaded rates is that they’ll both simplify pay, but also give employers more certainty that what they’re paying will be compliant.

Because, if we’ve learnt anything from the past, employers trying to create their own loaded rate without appropriate reference to work patterns and entitlements has resulted in underpayments.[3]

Who is impacted by this?

Schedule K applies to full-time employees under the hospitality award at Level 3 and above. At face value, it might appear that the change will only impact a small portion of all Australian employees. But the cohort includes a wide variety of roles – food and beverage attendants who train other staff, cooks involved in baking and pastry making and front office employees who arrange our reservations.

The accommodation and food services industry (which is the biggest user of the hospitality award), is the most award reliant industry in Australia.[4] There’s about 880,600 employees in the industry, with about 36% of (314,100) employees being full-time.[5]

So yes, the extent of Schedule K’s impact is limited but given the award-reliance of this industry, it’s a great test case for how this might play out in other award-reliant industries.

How does Schedule K operate?

So you’ve decided you want to use Schedule K’s loaded rates? Great. Let’s take a look at what you’ll need to do:

Check your roster cycle

The loaded rates can only be used if your roster cycle is weekly, starting on a Monday. If it’s not weekly, or doesn’t start on a Monday, you’ll need to adjust before considering using Schedule K.

Consult

7 days before implementing loaded rates, you’ll need to consult with any employees affected. I highlight consult because?there is no requirement to actually obtain agreement from employees. Interesting huh?

And beware – if you don’t consult, the FWC can terminate the arrangement.

?Check what rates you need to apply to who.

Schedule K covers a range of scenarios, so you’ll need to confirm which loaded rate to use for who. To do this, you’ll need to consider:

  • Whether the employee is a casino gaming employee or a general hospitality employee. There’s two sets of loaded rates, depending on which stream they are in.
  • The employee’s pattern of work – do they only work Monday – Friday? On Saturdays or Sundays? How many hours per week do they do – 40 or 45? These variables determine which loaded rate will apply – from 10.2% to 31.05% above the base rate.

Provide employees a loaded rate arrangement

This is Schedule L of the Award and needs to be signed by employee and employer and kept as part of the employee’s time and wages record (for 6 years).

Monitor work patterns

There may still be instances where the employee will be entitled to extra payments, outside their loaded rate. Like if they working on a public holiday, if they work more than their maximum weekly hours, or on a rostered day off.

Removing loaded rates

If you decide the loaded rates aren’t working, there’s two ways to remove them: by mutual agreement or by the employer giving 2 weeks’ written notice.

Will Schedule K make life ‘more flexible and efficient with proper safeguards’?

I see many benefits flowing from the approach adopted by FWC with Schedule K.

Taking the guess work out of loaded rates

In Deloitte's extensive work in underpayment remediations, we often find loaded rates or annualised arrangements are at ‘high risk’ for wage non-compliance. Loaded rates designed by businesses often fail to properly compensate fully for?an employee’s allowances, overtime or weekend penalties.

The FWC's approach takes the guesswork away, by calculating the loaded rates based on the more common scenarios, ensuring both flex and compliance.

‘No one will be financially worse off’

The FWC tell us no employee can be worse off financially on the Schedule K rates than if they weren’t using Schedule K. The Commission is confident in the rates’ design and satisfied employees will be paid the same or more than they would have otherwise.

?Simplifying payroll

Schedule K is intended to simplify payroll administration as employers can easily use a single rolled up rate rather than a number of time, day and situation specific penalties and allowances. But, as noted above, not everyone has the same view…

Unions didn't agree. They reckoned loaded rates would increase complexity

The view from the UWU and ACTU is that Schedule K will:

  • ?Increase complexity for businesses and their payroll processes.
  • Create ‘dual regulation’ because it’s unlikely to be adopted for all workers within a business
  • ?Increase the risk of non-compliance from employers applying the wrong rates to the wrong employees or failing to adhere to the parameters.

Is this the first time we've seen unions argue something shouldn't be done because of the regulatory burden on business?

Given the extent of non-compliance in hospitality including coming from informal 'rounding up' arrangements, I'm a bit surprised the unions have argued against a structured and independently assessed approach

So…what does this all mean?

If you use the hospitality award

Schedule K has been in operation since 3 September 2021. So if you employ any full timers, Level 3 and above, you’ve now got the option about whether you pay loaded rates, or whether you pay entitlement by entitlement. ?

And stay tuned, hospitality friends. 1 November 2021 – the FWC will give a second determination to increase Schedule K rates based on the Commission’s’ Annual Wage Review decision.

If you don’t use the hospitality award

Even though it’s only one industry, this change could have ripple effects to other industries primed for simplicity. It sends a strong signal that the FWC is open to a balanced and calculated approach to simplification. So who’s to say it couldn’t be introduced into other complex, award reliant industries.


?


[1] https://www.fwc.gov.au/documents/sites/award-flexibility-hospitality-retail/correspondence/am2020-103-correspondence-ag-to-justice-ross-2020-12-09.pdf

[2] Submission (fwc.gov.au)

[3] https://www.fairwork.gov.au/about-us/news-and-media-releases/2019-media-releases/november-2019/20191129-victorian-government-school-cleaners-report

[4] https://www.fwc.gov.au/documents/sites/award-flexibility-hospitality-retail/background/am2020103-infonote-accom-food-services-300821.pdf

[5] Employment by Industry Data – May 2021

Natalie James

Post-Elizabethan Secretary, Australian Department of Employment and Workplace Relations

3 年

Just checking - she’s still there! Going from 5k to 10 has doubled the size of my world! Which yes …know mathematical peeps….is obvious. But when you are experience it trust me ….there’s “feels”.

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Ben Walker

People, Culture and IR adviser

3 年
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Well said Natalie James, I look forward to reading it

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