Australia pays the penalty for workplace awards

The award system lumps an onerous burden on businesses, damages the economy and decreases job opportunities in retail and hospitality. It's an outdated IR relic that needs to be abolished.

The Fair Work Commission has begun taking submissions to its four-year review of the award system, the first review since the introduction of Labor’s ‘modern awards’ in January 2010.

The government has used the opportunity to suggest the commission ease or abolish penalty rates in awards. It is high time these restrictive and economically damaging conditions were removed from our labour market regime.

Penalty rates increase labour costs, reduce employment, and hamper business attempts to serve customers on the most important trading days on the calendar: late nights, weekends, and public holidays. Although penalty rates increase the take home income of workers lucky enough to be employed on weekends, late nights, and public holidays, their higher wages come at the expense of other workers who are shut out of the labour market. Penalty rates are a grossly unfair means of distributing work and wages across a workforce.

If the government really wanted to increase employment opportunities in award-reliant sectors such as retail and hospitality, it should go one step further and get rid of the award system altogether.

Awards set out minimum wages and working conditions at different rates and skill-sets for different industries. Each award will have a raft of different wages, and some will contain minimum or maximum hours, overtime rates, and/or penalty rates.

Today, 15 per cent of the workforce have their pay and conditions set by awards. The award system is influential as it sets the benchmark for both collective and individual agreements.

A change to award conditions or to an award wage (such as the annual minimum wage review) has far wider effects beyond the 15 per cent employed on awards, as all collective agreements and individual agreements that sit on top of the awards are affected. Some agreements even operate essentially as add-ons to awards. Others stipulate that, despite offering higher wages and conditions than the award minimum, any increase in the award rate will flow through to the agreement.

But that’s not all. The award system became far more onerous when Labor initiated its award modernisation process, amalgamating some 3,000 awards to 122. While a simpler system may be desirable, many wages and conditions were factored in the new awards. Thanks to Julia Gillard’s promise that “no worker would be made worse off because of modern awards”, many awards, minimum wages, and overtime and penalty rates were set at the highest common denominator. Gillard’s promise is having detrimental effects on the services sector, where many hospitality and retail stores are closing doors after deciding that paying double-and-a-half wage rates on public holidays was too much to bear.

Together with the yearly minimum wage increases over the last few years, many businesses in the services sector are under pressure from significant hikes in award wages and overtime and penalty rates.

Over a simple minimum standard, businesses ought to be able to set wages and working conditions that they can afford and that are relevant to their workplace. If workers decide these wages are fair and worth their labour, they ought to be free to go to work. Workers are smart enough to assess their options and decide what working conditions are fair and acceptable to them. The interference of the legal system should be kept to a minimum.

Any hint at a removal of the award system will be accompanied by shrieks from the union movement about a return to the law of the jungle, where employers pay a pittance to a horde of working poor who have no real choices but to take their exploitation on the chin. Already Labor has unearthed the spectre of WorkChoices, claiming that it is not dead, buried and cremated, but rather just sedated before being brought back to life.

The Australian labour market is more than adequately served by statutory minimum conditions that apply to all workers. Under the Fair Work reforms, the National Employment Standards set out a national minimum wage, a 38-hour working week and several different types of leave (annual, sick, personal/carers, public holiday, community service, and long serve). It also includes a four-week notice period and up to 16 weeks’ redundancy pay.

These are generous conditions, even when compared to OECD countries. In fact, Australia’s minimum wage is 53 per cent of the median wage. In 2012, the OECD ranked Australia fourth highest among OECD nations (in purchasing power parity terms). Awards simply build further minimum wages and conditions on top of an already high minimum.

Removing the award system would take the brakes off the labour market. It would also breathe new life into the small business and services sector, create jobs, and stimulate growth.

Alexander Philipatos is a policy analyst at the Centre for Independent Studies.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles