Federal Election 2019 – key workplace issues 01: Minimum wages and penalty rates

Labor has distinguished itself from the Coalition on wages in this election by proposing changes that would create higher minimum wages and penalty rates. In particular, Labor proposes changing the criteria the Fair Work Commission (FWC) applies in setting minimum wages, reversing the FWC's reduction of penalty rates in the retail, hospitality and fast-food industries, and introducing changes to prevent further penalty rate cuts. This article describes the current state of the law, what Labor wants to change, and what remains unclear about these proposals.

Penalty rates

In Australia, 122 modern awards set minimum terms and conditions of employment in particular industries and occupations. Generally, but not in all cases, modern awards only apply to non-managerial employees.

In February 2017, the FWC decided to reduce the penalty rates in modern awards applying to the retail, hospitality and fast-food industries. The precise changes varied slightly between sectors, but for non-casual employees:

• Sunday penalty rates were reduced from between 150-200% to around 125-150% (depending on the precise modern award that applies), with a 25% reduction being the most common outcome;
• public holiday penalty rates were reduced from 250% to 225%.

Casual employees were generally left with penalty rates 25% higher than non-casuals. The FWC ordered these changes occur gradually, between 1 July 2017 and 1 July 2020.

In deciding to reduce penalty rates, the FWC applied the test in the Fair Work Act 2009 (Cth), which requires that modern awards only include terms that are necessary to ensure that modern awards, together with the national employment standards (that apply to all employees), "provide a fair and relevant minimum safety net of terms and conditions". The decision took into account changing practices and attitudes to working on Sundays and public holidays over time

Labor wants to reverse this decision, and prevent future cuts to penalty rates. It is difficult to know how this could be achieved with absolute certainty other than legislating that penalty rates must be at specified amounts in specified sectors. Merely changing the criteria that the FWC weighs in determining penalty rates would be insufficient to achieve this with absolute certainty.

The Coalition, on the other hand, has defended the FWC's decision and the status quo.

The living wage

Each year the FWC decides what will be the minimum wage. Different minimum wages apply in different modern awards, and there is a separate minimum wage that applies to award free employees. The FWC applies the "minimum wages objective" which requires the FWC to establish and maintain a safety net of fair minimum wages, taking into account:

• the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and
• promoting social inclusion through increased workforce participation; and
• relative living standards and the needs of the low paid; and
• the principle of equal remuneration for work of equal or comparable value; and
• providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

Currently, the minimum wage for award-free employees is $18.93 per hour, or $719.20 per week for full-time employees. Last year saw a 3.5% increase in the minimum wage.

Labor has supported a move to a "living wage". The concept of a living wage has a long history in Australian employment law. In 1907, Justice Higgins of the Commonwealth Conciliation and Arbitration Court was asked to assess what constituted a "fair and reasonable" wage for workers at the Sunshine Harvester Factory. What was "fair and reasonable", he found, was the amount sufficient for a man in a civilised community to support a wife and three children in "reasonable and frugal comfort". No one suggests applying these criteria of the living wage any more.

What Labor would introduce, however, are some different criteria, designed to encourage the FWC to increase the minimum age, to better allow persons to live on it. The ACTU has argued for a minimum wage to be set at 60% of the median wage – which is a test of "relative" poverty. This would increase the current minimum wage by around $75. Labor is unlikely to legislate this to apply this test, but may introduce some criteria that requires the FWC to consider the relative wages of low-paid employees to average or median income.

The Coalition has defended the status quo in relation to the setting the minimum wage.

What you need to know

If Labor is elected, we can expect:

• in respect of penalty rates:
  • a reversal of cuts to Sunday and public holiday penalty rates in the retail, hospitality and fast food industries, and
  • the insertion of some provisions seeking to prevent further cuts to penalty rates.
• changed criteria in relation to the minimum wages objective, designed to encourage the FWC to increase minimum wages.

It is unclear exactly how exactly how Labor would change the provisions in relation to the minimum wages objective, and how far Labor would go to prevent penalty cuts. Would it actually legislate that penalty rates cannot be decreased, or only change the principles the FWC considers in determining penalty rates?

If the Coalition is elected, the status quo will remain.

Related Insights

• Federal Election 2019 – key workplace issues 02: Minimum wages and penalty rates 
• Federal Election 2019 – key workplace issues 03: Labour hire and sham contracting