Methods of Determining Wages and Conditions of Work (VCE SSCE Business Management): Revision Notes
Methods of Determining Wages and Conditions of Work
Overview of the Australian wage-setting system
In Australia, the system for establishing wages and working conditions is governed by the Fair Work Act 2009. This legislation provides a structured framework that protects employees while allowing flexibility for different workplace arrangements.
Employees can have their wages and conditions determined through three main methods:
- Awards – industry-wide minimum standards
- Enterprise agreements – workplace-specific negotiated agreements
- Individual employment contracts – one-on-one agreements between employer and employee
Two key bodies oversee this system:
- Fair Work Commission (FWC) – sets minimum wages, approves enterprise agreements, and reviews awards
- Fair Work Ombudsman – monitors compliance and enforces minimum entitlements
Regardless of which method applies, all employees are entitled to receive at least the National Employment Standards (NES) as a baseline.
National Employment Standards (NES)
The Fair Work Act 2009 establishes 11 minimum employment entitlements that form the NES. These standards apply to all employees in Australia, regardless of whether they are covered by an award, enterprise agreement, or individual contract. However, casual employees receive reduced entitlements in some areas.
The 11th standard was added to protect casual workers by allowing them to request conversion to permanent employment after 12 months with the same employer.
Critical principle: No award, enterprise agreement, or individual contract can provide conditions that fall below the NES or national minimum wage. These standards represent the absolute minimum that employers must provide.
The 11 National Employment Standards
1. Maximum weekly hours
- Standard working week is 38 hours
- Employers cannot require employees to work additional hours unless those hours are reasonable
- What is "reasonable" depends on factors like the employee's role, personal circumstances, and notice given
2. Requests for flexible working arrangements
- Available to employees who have worked for the same employer for 12 months
- Employees can request changes to their working arrangements
- Examples include changes to hours worked, patterns of work, or location of work
- Employers must consider requests seriously and can only refuse on reasonable business grounds
3. Offers and requests for permanent employment
- Applies to casual employees who have worked regularly for 12 months
- Employers should offer casual employees the option to convert to part-time or full-time employment
- Casual employees can also request this conversion
- Protects casual workers from remaining in insecure employment indefinitely
4. Parental leave and related entitlements
- Up to 12 months of unpaid parental leave per employee
- Employees have the right to request an additional 12 months
- Applies to birth parents and adoptive parents
- Job must be kept available for the employee's return
5. Annual leave
- 4 weeks of paid leave per year for most employees
- 5 weeks for shift workers who work irregular hours
- Leave is paid at the employee's base rate of pay
- Leave accumulates if not taken
6. Personal/carer's leave, compassionate leave, and family and domestic violence leave
- Up to 10 days per year of paid personal leave (for illness or caring for family members)
- Up to 5 days per year of paid leave for family and domestic violence situations
- Compassionate leave available for bereavement and other serious situations
- Personal leave accumulates year to year if unused
7. Community service leave
- Unpaid leave for voluntary emergency management activities (e.g. State Emergency Service, volunteer firefighting)
- Up to 10 days of paid leave for jury service
- After 10 days of jury service, leave becomes unpaid
- Recognises the importance of civic participation
8. Long service leave
- Entitlement arises after continuous service with the same employer
- The qualifying period varies between 7 and 15 years depending on the state or territory
- Recognises and rewards employee loyalty
9. Public holidays
- Employees are entitled to a day off on public holidays
- Employees can be reasonably requested to work on public holidays
- If required to work, employees receive penalty rates (higher pay)
- Public holidays vary by state and territory
10. Notice of termination and redundancy pay
- Employers must provide up to 4 weeks' notice when terminating employment (depending on length of service)
- Employers can choose to "pay in lieu of notice" instead of requiring the employee to work the notice period
- Redundancy pay of up to 16 weeks applies when a position is eliminated
- Amount depends on length of service
11. Fair Work Information Statement (FWIS) and Casual Employment Information Statement (CEIS)
- Employers must provide new employees with the FWIS
- FWIS contains information about NES, and the roles of the Fair Work Ombudsman and Fair Work Commission
- CEIS explains when employers must offer casual conversion to permanent arrangements
- Also outlines conditions where an employer is not required to offer permanency
National minimum wage orders
The Fair Work Commission reviews and sets the national minimum wage annually. This review takes place each year, with changes coming into effect on 1 July (the start of the financial year).
Who does it apply to?
The national minimum wage applies to all Australian employees who are not covered by an award or enterprise agreement. It acts as a safety net to ensure fair baseline pay.
Different rates for different workers:
- Junior employees receive a percentage of the national minimum wage (less than 100%)
- Apprentices receive a reduced percentage based on their year of apprenticeship
- Employees with disabilities that limit their work capacity may receive a percentage rate
- Casual employees must receive the minimum wage plus a casual loading (typically 25%) to compensate for lack of paid leave entitlements
The Fair Work Commission considers economic conditions, cost of living, and the needs of low-paid workers when setting the annual wage increase.
Awards
An award is a legal document that sets out the minimum pay rates and conditions of work for an entire industry or occupation in Australia. Awards are created and reviewed by the Fair Work Commission.
Key characteristics of awards
Coverage:
Awards apply based on the industry an employee works in or the specific job they perform. There are 122 industry and occupation awards covering most Australian employees. For example:
- Retail award covers shop assistants
- Hospitality award covers restaurant and café workers
- Manufacturing award covers factory workers
Review process:
Awards are reviewed by the Fair Work Commission every four years to ensure they remain relevant and fair. During reviews, submissions can be made by:
- Employers and employer groups
- Trade unions
- Other interested parties
Legal status:
Awards are legally binding and enforceable. Employers must comply with all award conditions, and failure to do so can result in penalties.
What awards specify
Each award contains detailed provisions covering:
- Minimum wages – pay rates for different classification levels and roles
- Working conditions and overtime – when overtime applies and how much must be paid
- Holidays and leave – types of leave and how much is provided
- Penalty rates and allowances – extra pay for weekend, night, or public holiday work, plus allowances for specific duties
- Procedures for resolution of grievances – how workplace disputes should be handled
- Termination of employment – notice periods and procedures
- Superannuation – employer contributions to retirement savings
- Annual leave and leave loadings – extra payment (typically 17.5%) when taking annual leave
Relationship with other agreements
An important principle is that awards do not apply when a business has an enterprise agreement or other registered agreement with its employees. In these cases, the enterprise agreement takes precedence.
However, awards still serve as a safety net – they guarantee minimum wages and conditions that enterprise agreements and individual contracts cannot fall below.
Enterprise agreements
An enterprise agreement is a workplace-specific agreement negotiated between an employer and their employees. These agreements can be tailored to suit the particular needs and circumstances of a workplace.
How enterprise agreements are created
The negotiation process:
Enterprise agreements result from enterprise bargaining, which is a formal negotiation process between:
- One or more employers, and
- Two or more employees (or a group of employees) with their chosen representatives
Role of trade unions:
In most cases, employees choose a trade union to represent them during negotiations. The union acts as an advocate for the employees' interests and has experience in negotiating workplace agreements. However, union representation is not mandatory – employees can also represent themselves.
Employee approval:
For an enterprise agreement to proceed, it must be approved by a majority vote of the affected employees. This democratic process ensures that employees genuinely support the agreement.
Registration with Fair Work Commission:
Once employees approve the agreement, it must be submitted to the Fair Work Commission for registration (ratification). The FWC reviews the agreement to ensure it meets legal requirements.
Fair Work Commission approval criteria
The Fair Work Commission will only approve an enterprise agreement if it meets five key criteria:
1. Better off overall test (BOOT)
Employees must be better off overall under the enterprise agreement compared to the relevant modern award. The FWC examines the entire package of wages and conditions, not just individual elements.
2. No unlawful terms
The agreement must not contain any terms that are prohibited by law, such as discriminatory provisions or terms that undermine workplace safety.
3. Individual flexibility arrangements
The agreement must include provisions allowing individual employees to make flexibility arrangements that meet their genuine needs while maintaining overall fairness.
4. Specified duration
The agreement must run for a specified period of time, up to a maximum of four years. This ensures regular opportunities for renegotiation.
5. Dispute settlement procedure
A clear grievance procedure must be included to resolve workplace disputes. This helps maintain good workplace relations and provides a fair process for addressing concerns.
Individual flexibility agreements (IFA)
Enterprise agreements (and awards) can include IFA clauses that allow individual employees to vary certain terms to suit their personal circumstances. For example:
- Adjusting working hours to accommodate study or caring responsibilities
- Trading some conditions for others that better suit the employee's needs
- Modifying leave arrangements
IFAs must still leave the employee better off overall and must be genuinely agreed to by the employee (not imposed by the employer).
Benefits of enterprise agreements
For employees:
- Wages and conditions typically above award minimums
- Terms tailored to their workplace's specific needs
- Voice in determining their conditions through the voting process
For employers:
- Flexibility to design conditions that suit their business operations
- Can negotiate productivity improvements in exchange for better conditions
- Certainty for up to four years
Legal status:
Once registered, enterprise agreements are legally binding on both the employer and employees. All parties must adhere to the terms.
Individual employment contracts
An individual employment contract is a legal agreement between a single employee and their employer. These contracts establish the specific terms of employment for that individual.
Contents of individual contracts
Individual employment contracts typically include comprehensive details about:
- Position and responsibilities – job title, duties, and reporting relationships
- Hours of work – expected working hours and flexibility requirements
- Remuneration – salary or wages, bonuses, and other financial benefits
- Leave entitlements – annual leave, personal leave, and other leave types
- Benefits – additional perks such as vehicle allowances, professional development, or health insurance
- Dispute resolution process – procedures for addressing workplace grievances
- Termination provisions – notice periods, grounds for termination, and any severance arrangements
Special protective clauses
Individual employment contracts often include special clauses to protect the employer's business interests:
Confidentiality clause:
- Prohibits employees from sharing sensitive company information
- Covers trade secrets, product information, customer data, and business strategies
- Usually continues to apply even after the employee leaves the business
- Breach can result in legal action for damages
Non-solicitation clause:
- Prevents departing employees from encouraging former co-workers to join their new employer
- Protects the business from losing multiple staff members when one employee leaves
- Must be reasonable in scope and duration to be enforceable
Non-compete clause:
- Prevents employees from working for direct competitors for a specified period after leaving
- Must be reasonable in terms of:
- Duration (typically 6-12 months)
- Geographic area covered
- Scope of restricted work
- Courts may refuse to enforce overly restrictive non-compete clauses
Who receives individual contracts?
Individual employment contracts are typically offered for positions requiring:
- High-level skills and qualifications
- Specialist expertise
- Senior management responsibilities
- Unique or strategic roles
These positions often warrant customised employment terms beyond standard award or agreement provisions.
Legal requirements
Minimum standards protection:
Individual employment contracts must not provide wages and conditions less than:
- The National Employment Standards (NES), or
- Any relevant awards or enterprise agreements that may apply
This ensures employees cannot be disadvantaged by signing individual contracts. The contract can provide more than the minimum, but never less.
Safety net:
National minimum wage orders and modern awards continue to act as a safety net, protecting employees under individual contracts from exploitation.
Comparing the three methods
Understanding the differences between awards, enterprise agreements, and individual employment contracts is crucial for both employers and employees.
| Characteristic | Modern Award (FWC) | Enterprise Agreement (FWC) | Individual Employment Contract |
|---|---|---|---|
| Who creates them? | Fair Work Commission based on submissions from employers, unions, and other bodies | Negotiated between employer and employees (collective group) or employer, trade union, and employees | Negotiated directly between employer and individual employee |
| How do they arise? | FWC receives submissions and determines award provisions through a formal review process | Enterprise bargaining process followed by employee vote and FWC approval | Direct negotiation between the parties with mutual agreement |
| Content | Pay and working conditions for employees in an industry or occupation; includes 11 NES minimum standards | Pay and working conditions for employees at a specific workplace; includes 11 NES minimum standards plus negotiated additional conditions; national minimum wage and awards provide safety net | Pay and working conditions for individual employee; includes 11 NES minimum standards; national minimum wage and awards provide safety net |
| Duration | Ongoing, with reviews every four years | Up to four years maximum | Determined through negotiation (commonly one year, but can vary) |
| Annual leave | Four weeks of paid leave per year paid at base rate; shift workers entitled to five weeks at base rate | Four weeks of paid leave per year paid at base rate; shift workers entitled to five weeks at base rate | Period determined by employer or through negotiation (must meet minimum NES requirements) |
Key differences explained
Creation and control:
- Awards are created by the FWC as an independent body
- Enterprise agreements are negotiated between workplace parties and approved by FWC
- Individual contracts are directly negotiated between two parties without FWC involvement
Scope of application:
- Awards apply across entire industries or occupations
- Enterprise agreements apply to specific workplaces
- Individual contracts apply to single employees
Flexibility:
- Awards provide standardised conditions with limited flexibility
- Enterprise agreements offer significant flexibility tailored to workplace needs
- Individual contracts offer maximum flexibility for unique circumstances
Bargaining power:
- Awards protect employees who have no bargaining power
- Enterprise agreements involve collective bargaining, giving employees stronger negotiating position
- Individual contracts may disadvantage employees with limited bargaining power (hence the safety net provisions)
Real-world application: Better Read Than Dead case study
Worked Example: Enterprise Bargaining in a Small Business
The Better Read Than Dead bookstore case illustrates the challenges and opportunities of enterprise bargaining in small businesses.
Background:
Better Read Than Dead is a small Sydney bookstore employing just over a dozen staff. Employees, represented by the Retail and Fast Food Workers Union (RAFFWU), sought to negotiate an enterprise agreement rather than remain on award wages.
Employee perspective:
Staff members argued that:
- They had adapted to significant changes (online orders, click-and-collect, virtual book clubs, QR codes)
- They brought valuable knowledge and skills to their roles
- They faced reduced shifts despite increased job complexity
- They deserved "fair treatment" through above-award conditions
Employer perspective:
The business claimed that:
- They paid award wages as required
- They employed few junior staff (who could be paid less)
- They had offered casual staff permanent positions (which some declined)
Broader implications:
This case highlights an important issue in Australian workplace relations:
- Small businesses employ nearly half of Australian workers
- Most small businesses are not unionised
- Pay and conditions are typically set by awards in small businesses
- Enterprise bargaining in small businesses could set precedents for wider unionisation
Outcome significance:
Union representatives noted that success at Better Read could be a "landmark" precedent, encouraging other small business employees to seek enterprise agreements. This could transform workplace relations by extending enterprise bargaining beyond large businesses.
Key lessons:
- Enterprise agreements can apply to businesses of any size
- Employees have the right to collectively negotiate above-award conditions
- Small businesses may face challenges balancing employee demands with financial constraints
- Trade unions play an important role in representing employee interests during negotiations
Remember!
Key Points to Remember:
Core Framework:
- The Fair Work Act 2009 governs wage setting in Australia through the Fair Work Commission and Fair Work Ombudsman
- All Australian employees are entitled to the 11 National Employment Standards (NES) as a baseline, regardless of their employment arrangement
- The national minimum wage is reviewed annually by the Fair Work Commission and applies to employees not covered by awards or enterprise agreements
- Awards set legally binding minimum wages and conditions for specific industries or occupations (122 awards in total)
- Enterprise agreements are negotiated between employers and employees/unions, must be approved by employee vote, and registered with the Fair Work Commission after meeting five key criteria
- Individual employment contracts are negotiated one-on-one and often include protective clauses (confidentiality, non-solicitation, non-compete)
- No award, enterprise agreement, or individual contract can provide conditions below the NES or national minimum wage
Key Terms:
- National Employment Standards (NES) – 11 minimum entitlements all Australian employees must receive
- Award – legally binding document setting minimum pay and conditions for an entire industry or occupation
- Enterprise agreement – negotiated agreement between employer and employees at a specific workplace, registered with Fair Work Commission
- Individual employment contract – one-on-one agreement between employer and employee
- Fair Work Commission (FWC) – sets minimum wage, reviews awards, approves enterprise agreements
- Fair Work Ombudsman – monitors compliance and enforces minimum entitlements
- Enterprise bargaining – negotiation process between employers and employees (often with union representation)
- Better off overall test (BOOT) – requirement that enterprise agreements leave employees better off than under the relevant award
- Individual flexibility agreement (IFA) – allows variation of award or enterprise agreement terms to suit individual circumstances
Critical Framework:
The Australian wage-setting system operates on three levels:
- Safety net – NES and national minimum wage provide absolute minimum protection
- Industry standards – Awards establish minimum conditions for specific industries
- Workplace/individual negotiation – Enterprise agreements and individual contracts can provide above-minimum conditions but never below the safety net