Co-authored by Suzannah Hewson
The Fair Work Commission (FWC) has determined to vary the Professional Employees Award 2020 (Award) to clarify its coverage and introduce entitlements to overtime payments and penalty rates for certain professional employees, whilst excluding employees who receive at least 25% or more in excess of the minimum award annual wage from the major impact of these changes.
In this article, we provide an overview of these changes, and how they may impact employers.
Recap on coverage of the Professional Employees Award
The Award covers the following types of employees:
- Engineers (across all industries including construction, consulting, manufacturing, mining);
- Scientists;
- Medical researchers; and
- Employees principally engaged in the following industries:
- information technology;
- quality auditing; or
- telecommunications services.
This occupation-based Award is somewhat unique as it largely covers highly paid professional salaried employees whose peers in other industries are generally not covered by the modern award system. The FWC bought this matter on its own motion to deal with two key issues:
- excessive litigation due to the unclear coverage of the Award; and
- deficiencies in the current ordinary hours provisions of the Award, given there is no entitlement to overtime or penalty rates.
Hours of employment and overtime
Current position
The current position with respect to ordinary hours and overtime is:
- ordinary hours are 38 hours per week, which must not exceed an average of 38 hours per week over 'the cycle';
- there is no clear or enforceable overtime or penalty rate
entitlements for employees who work in excess of 38 ordinary hours
per week or alternative work patterns (i.e. late nights). Rather,
the Award provides examples of what compensation might look like,
including:
- granting of special additional leave;
- granting if special additional remuneration;
- taking factors such as additional hours or working on unsociable hours into consideration when calculating an annual salary; or
- granting a special allowance or loading.
- employers are required to review any special compensation annually to ensure that it is set at an appropriate level.
Changes to the Award
While accepting that a large majority of professional engineers and scientists are paid significantly in excess of the minimum annual wages prescribed under the Award, the FWC commented that there is a minority of professional engineers and scientists who are "award-reliant" - being those who are afforded only the minimum rates and conditions for which the Award provides, or are paid only slightly above minimum rates. This is likely to be graduate engineers, scientists and IT professionals who have recently entered the workforce.
The FWC also noted the disparity in treatment of full-time employees covered by the Award compared to part-time and casual employees, who must be paid the appropriate minimum hourly rate for every hour worked. The FWC noted the logical disconnect that part-time and casual employees are still paid their hourly rate for work in excess of 38 hours per week, but that no clear entitlement exists for full-time employees working additional hours.
Having determined that the Award currently does not meet the modern awards objective of establishing a fair and relevant safety net, the FWC determined that the following 'minimalist' changes be made to the Award to apply to all employees:
- Ordinary hours Ordinary hours of work are 38 hours per week. This amends the current ability to average hours;
- Reasonable requests for overtime In accordance with s 62 of the Fair Work Act 2009 (Cth), an employer may request or require that a full-time employee work in excess of 38 hours per week (overtime) provided that the additional hours are reasonable.
Importantly, the FWC determined the following changes for employees who do not have a contractual entitlement to an annual salary that is at least 25% or more in excess of the minimum award annual wage:
- Overtime hours Employees are to be paid the appropriate minimum hourly rate for all hours worked in excess of 38 in a week. These hours are to be paid in addition to the minimum annual wages paid, and shall include work on or in connection with call-backs and work performed remotely or on electronic devices;
- Time off in lieu Employees will be eligible to agree to take time off in lieu (TOIL) instead of receiving the additional payments set out above;
- Penalty rates
- A penalty rate of 125% will be payable for all hours worked before 6.00 am or after 10.00 pm between Monday to Saturday (for casual employees, this is in addition to their casual loading); and
- A penalty rate of 150% will be payable for all hours worked on a Sunday or public holiday (for casual employees, this is in addition to their casual loading).
Clarification of Award coverage
The FWC has also clarified the coverage of the Award, which will now clearly cover an employee performing:
- professional engineering duties;
- professional scientific duties;
- professional information technology duties; or
- quality auditing
who are classified in one of the classifications at Schedule A, provided that the employee is not employed in a wholly or principally managerial position.
The purpose of this change is merely to clarify the coverage of the Award, and is not intended to limit or extend the current scope of the Award.
What does this mean for employers of professional employees?
Record keeping obligations
In accordance with the Fair Work Regulations 2009 (Cth), employers will also be required to keep records of hours worked by employees:
- in excess of the 38 hour week;
- before 6.00 am or after 10.00 pm between Monday - Saturday; or
- on Sunday and public holidays.
Records should include work performed remotely, on electronic devices or in connection with call-backs. These record-keeping obligations will only apply to employees who are caught by these changes, being those who do not receive at least 25% in excess of the minimum award annual wage.
Review of current employment arrangements
Employers should also review existing employment arrangements to determine which employees are currently paid an annual salary that is less than 25% in excess of the minimum annual wage under the Award. Employers should consider:
- the implementation of systems and processes in order to facilitate the tracking and payment of any overtime or penalty payments for those employees who are impacted by these changes;
- whether they can rely on any contractual clauses to lawfully set-off any entitlements to overtime or penalty rates that may arise;
- conducting a remuneration review to consider whether they wish to:
- increase any annual salary arrangements so that employees are paid 25% or more in excess of minimum annual wages so as to not be caught by these changes; or
- enter into a 'guarantee of annual earnings' for a guaranteed period with an employee who earns more than the high income threshold, under s.330 of the FW Act - the practical effect of this being that the employee will no longer be covered by the terms and conditions of the Award for that period. (Note, however, that the high income threshold is currently $162,000 pa, and will therefore not be available to many award-covered employees.)
Next steps
The FWC has called for all submissions in response to the determination to be submitted by Friday, 10 February 2023.
For many employers with professional engineers, scientists or IT professionals, the requirement to track hours and maintain records (via timesheets, for example) is likely to represent a significant operational change (and potentially more so if employees work remotely). Businesses may also need to consider the impact that implementing time and record keeping requirements might have on workplace culture or on employee engagement. We therefore recommend that employers start preparing for these changes as soon as possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.