Most employers in Australia would be aware of the minimum entitlements for employees that are set out within The Fair Work Act 2009 (Cth) (‘The FWA’). However, not as many are aware that there are often further entitlements and employment conditions that are set out within Modern Awards or Enterprise Agreements that are in addition to these minimums.
The National Employment Standards (NES) are set out within The FWA – and these provide for the minimum entitlements for employees. Sitting on top of these are Modern Awards and Enterprise Agreements. These are much more detailed documents, that offer more favourable and abundant conditions for employees that are additional to the NES. It is not uncommon for employers to be unfamiliar with what exactly these documents are, or even be aware of which will apply to their business and employees. However, it is incredibly important that employers are across Modern Awards and Enterprise Agreements including which applies to them, the difference between the two and what kind of entitlements these contain, to be able to pay and manage staff compliantly. In the below article, we explore these in further detail and what exactly the difference is between these two types of documents.
Modern Awards are legally enforceable documents that set out the minimum terms and conditions of employment for employees on top of the NES. There are 121 different Modern Awards, and these provide for additional employment terms specific to various industries and/or occupations (depending on the coverage of the Award). The majority of employees in Australia are covered by a Modern Award, as these cover a very broad range of work, depending on either the type of industry the business operates in (Industry Award Coverage) or the type of work the employee is specifically performing, if there is no industry coverage (Occupational Award Coverage). Employees that are not captured by any Award will generally be “award-free”.
Modern awards outline various entitlements, such as:
- How full-time, part-time, and casual employees are engaged
- Hours of work
- Minimum rates of pay;
- Overtime provisions;
- Penalty rates; and
However, they can cover quite a broad range of rules and entitlements aside from these – including rules around directing or cashing out leave, notice of termination or redundancy entitlements, or consultation obligations.
Like the NES, you cannot provide employment conditions that are less favourable than what is set out in a modern award.
The minimum terms and conditions of employment vary between each modern award, so employers should never assume that the terms and conditions of employment will apply throughout all modern awards. For example; the Clerks Award does not outline more favourable terms than the NES in relation to Redundancy Pay entitlements. However, the Building and Construction General On-site Award does provide for quite specific and more favourable Redundancy Pay entitlements for employees covered by this Award; including additional obligations for small businesses to pay redundancy in certain situations including where an employee resigns.
An employer and employee may agree to modify the use of specific terms of an award to satisfy the undisputed needs of both parties by engaging in an Individual Flexibility Arrangement (IFA). IFA’s are quite complex documents that we recommend seeking further advice on.
In summary, your employees will fall under a modern award if they:
- work in an industry or occupation that has an applicable award; and
- are performing duties covered within the relevant modern award’s classifications.
Similarly, like Modern awards, Enterprise agreements (‘EA’) have more favourable and specific employment conditions for the employees it covers, that sit on top of the NES. It sets out what entitlements an employer needs to provide for those employees in their business or organisation who are covered by the EA.
However, an employee cannot be covered by both a Modern Award and an EA. This will apply instead of any applicable Modern Award. One of the main differences between a modern award and an EA, is how they are created. An EA is drafted to be specific to a certain enterprise (and depending on the EA, sometimes specific to more than one enterprise). These do not automatically apply to all businesses who may operate within that same industry – and are quite specific with who exactly they are intended to apply to and who can utilise the EA instead of the Award. This is unlike modern awards which are drafted and implemented by the Fair Work Commission (‘FWC’), and are automatically applicable to employers/employees that operate in that industry or occupation. Employers who do not have an active EA in place cannot operate under one, and would need to comply with the applicable Award.
Types of Enterprise Agreements
- Single-Enterprise Agreement: created by two or more employers who share a single interest.
- Multi-Enterprise Agreement: created by two or more employers as well as the employees of those different enterprises.
- Greenfields Agreement: a specific category of enterprise agreement that is only available to a genuine new enterprise. This could be, for example, a new business or project
These types of agreements need to be specifically drafted, and this can be an extremely lengthy and costly process – including the need (in most cases) for employees to vote on approving the EA. After they have been drafted, they will then go through a stringent application and approval process through the Fair Work Commission. Before these are approved, the agreement must pass the ‘better off overall test’ (BOOT). The BOOT necessitates the Fair Work Commission to determine whether employees would be ‘better off’ under the enterprise agreement rather than if the applicable modern award were applied. Importantly, an EA cannot come into operation until it has been approved by the FWC.
Often these agreements will offer different terms than what is outlined in the applicable modern award, but as mentioned, must be better off overall in comparison when being passed. EA’s can be beneficial in certain circumstances, such as to simplify the application of complex awards or where multiple awards may apply to a single business and make it exceptionally difficult to interpret and operate under.
These agreements, however, unlike an Award – do not operate indefinitely. When these are approved, they will have a nominal period (typically of four years) in which they are approved to operate and cannot be terminated. After this period has lapsed, an EA can continue to operate, but can be terminated upon application by an employee or the employer.
The Main Differences
|General terms that apply to an entire industry or occupation.
Specific terms and conditions agreed upon between an employer and employee
(single-enterprise agreement) or between a group of employers and their employees (multi-enterprise agreement).
|Awards are set by the Fair Work Commission after consultation with the community.
|Enterprise agreements are negotiated between employers and employees and approved by the Fair Work Commission, provided they pass the BOOT.
|They set detailed minimum standards that apply throughout a covered industry.
|They can be briefer than awards and, subject to the BOOT, they can also vary the application of an award to a specific business.
If you require any support with understanding modern awards or enterprise agreements, including whether your business is potentially covered under one of these documents, please reach out to the HR Connect Team.
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