The Great Penalty Rate Debate
Penalty rate reform is one of the key topics at the forefront of industrial relations debate this year. The Australian Government is under increasing pressure from stakeholders in affected industries (including retail, hospitality and entertainment) to make changes to the current penalty rates system, particularly with respect to Sunday penalty rates and new public holidays.
The introduction of new public holidays in Victoria has further stirred debate about penalty rates and their role in a modern workplace relations system.
Public holidays can come at an enormous cost to the national economy and business owners, with little thought given to matters such as who bears the increased cost of wages when public holiday penalty rates are applied. According to PwC Australia, the new Grand Final Eve public holiday in Victoria alone may have cost the economy as much as $852 million as a result of the closure of businesses that would normally be open on that day.
The cost to businesses that remain open is also potentially significant, given that a majority of employees are likely to be entitled to penalty rates of as much as two and half times their regular wages for working on a public holiday.
What are penalty rates and why do they exist?
Penalty rates refer to the additional remuneration paid to employees by employers in order to compensate them for working at undesirable or unsocial hours. This includes payment for:
- overtime work;
- regular or unpredictable work;
- public holidays; and
- shift work.
The penalty rate system originated at a time when the landscape of the Australian society and labour market was vastly different to how it is today. The majority of the workforce were males working in full time industrial jobs, there was little to no casual or part time employment and low female participation rates in the workforce.1
Most people worked during the week so weekends and public holidays were the only time available for socialising and worship, therefore working during these hours was considered to be “unsocial”. Accordingly, employers were expected to pay a “penalty” for engaging employees during these unsocial hours.
A time for change?
Australian society has changed dramatically since this time. Today there is a 58% female participation rate in the workplace2. Casual employment, part-time employment and flexible work arrangements have become commonplace and weekend and after hours work is often deemed necessary to fulfill the demands of a consumer society and compete in a globalised world.
In the past, Saturdays were reserved for recreation and sport while Sunday was the day of religious observance,3 but this may no longer resonate with contemporary Australian society. Now, participation in sport and outdoor activity is outweighed by engagement with audio/visual media.4 Similarly, fewer Australian’s actively engage in Sunday worship with the 2011 census reporting that 22.3% of Australian’s have no religious affiliation, 7% more than the 2001 census.
Further, with increases in technology and globalisation allowing people to work from anywhere at any time and across multiple time zones, the concept of a regular working week with set social and unsocial hours is becoming more and more diluted.
The position of those who support the modification of penalty rates argue that the penalty rate system is a relic of the past. The evolution of contemporary Australian society and modern business practices has made “unsocial hours” irrelevant and the penalty system must adapt to serve a today’s society.5
Advocates for the penalty system argue that the penalty rate provides an incentive for people to work on weekends or at undesirable times. While this may be the case for some employees others prefer the flexibility of working at these times. For example, for employees with carer responsibilities during the day, working weekends and nights may suit their schedules better as their partners who work regular hours can look after the children at that time. This is also the case for many other groups, such as university students, where working weekends and public holidays often fits in better with their existing commitments.
While supporters of the penalty rate system argue that businesses that are open during “unsocial hours” will profit from increased trade, this is not necessarily the case. Many employers argue that trade on weekends and public holidays is often required to enable business to trade and support employee wages during quieter periods during the week.
Watch this space.
This year the Productivity Commission will deliver its inquiry into workplace relations and the Fair Work Commission will decide on the future of penalty rates in the retail and hospitality industries. Together, these decisions will impact on the future of penalty rates.
In August of this year, the Productivity Commission’s draft report into Australia’s workplace relations framework was released. This included, amongst other things, recommendations that:
- employers not be required to pay for leave or any additional penalty rates for any newly designated State and Territory public holidays; and
- Sunday penalty rates that are not part of overtime or shift work be set at Saturday rates for the hospitality, entertainment, retail, restaurants and café industries.
In November 2015, the Productivity Commission will deliver its final report and recommendations into Australia’s workplace relations framework. From this, legislative changes are expected.
Penalty rate case
In addition to any reforms flowing from the Productivity Commission, the Fair Work Commission is currently reviewing penalty rates under the hospitality and retail industry modern awards as part of its 4 year modern award review.
Key stakeholders in these industries have until early December 2015 to file submissions presenting their arguments for and against penalty rate reform. Following this, a decision will be handed down that will potentially amend the application of penalty rates in these awards.
While a complete overhaul of the regime is unlikely, some change like the alignment of Sunday rates with Saturday rates is expected.
What does this mean for employers?
The debate on the penalty rate system is far from over, but while the debate continues, penalty rates still apply. It therefore remains critical for employers to understand and comply with their obligations in relation to penalty rates and ensure they are up to date with any forthcoming changes.
PCS can assist you if you have any questions about your business’ obligations in relation to penalty rates or how to comply with them.
1. Phil Lewis, ‘Paying the Penalty? The High price of Penalty Rates in Australian Restaurants’ (2014) 21 (1) Agenda: A Journal of Policy Analysis and Reform 7, 8.
2. Joanne Simon-Davies, Women in the Australian workforce: A 2013 update (8 March 2013) Parliament of Australia
3. Restaurant and Catering Association of Victoria  FWCFB, .
5. Emily Aitken, ‘Living for the weekend: Should weekend penalty rated be reduced or abolished’ (2014) 5 Workplace Review 126, 127.
Other relevant resources
20 June 2017