Penalty Rate Lotto ... and the Winning Numbers Are?

26th July 2016

After eighteen months, volumes of evidence, productivity commission reports, arguments for and against and a national election that solved nothing, a decision on modern award penalty rates in Hospitality, Entertainment, Retail, Restaurant and Cafe (HERRC) businesses is imminent and nobody has any idea of the likely outcome. Welcome to penalty rate lotto. Another example of the random world of Australian employment regulation.

For the uninitiated, Australian modern award penalty rates are derived from an historical array of mismatched state and federal regulatory arrangements, brought back from the dead by the Labor government in 2010 and transitioned over four years to current levels. The historical antecedents justifying specific rates have been lost in the mist of time. I defy anyone to explain one rate from the other, let alone which is the most appropriate.

At the moment, employer groups want parity between penalties paid on Saturday and Sunday. The Australian Council of Trade Unions (ACTU) is vigorously opposing any change. The Australian government doesn’t have a view and seems to think the Fair Work Commission will do the right thing. The Labor Party leader Bill Shorten said martians landing on Earth is more likely than the Fair Work Commission reducing Sunday penalty rates. The odds of predicting the outcome are probably similar to winning lotto on Saturday night.

So, how do the numbers currently stack up and can we predict how the numbers will fall when the decision is made?

Almost every one of the 122 modern awards include additional penalty payments for work performed in the evenings, early morning, overnight, weekends and on public holidays. There are only seven awards under review in the case being decided by the Fair Work Commission, with seven different penalty arrangements in place.

If you work in a fast food store you will be paid an additional 10% after 9pm on a Monday unless you are a casual who receives an additional 35% loading on your ordinary hourly pay. However, a person working in a clothing store receives an additional 25% if they work beyond 6pm on the same Monday. Casuals in that store are paid 25% penalties whether they work before or after 6pm. Hairdressers don’t receive any evening penalty rates for cutting your hair on Thursday evening. Waiters in a restaurant are paid no additional loading unless they work after 10pm, but a waiter working in a licensed club or restaurant attached to a hotel receives 10% penalty after 7pm. Full-time and part-time staff working in pharmacies are paid a minimum penalty of 25% for working after 7pm mid-week.

Weekends are no less confusing. The casual fast food employee is paid a loading of 50% on Saturday and 75% on Sunday. However, her friend working casually in the retail fashion store next door is paid 35% extra on Saturday and 100% extra on Sunday. Hairdressers receive a loading of 33% on Saturday and 100% on Sunday. If you are lucky enough to work in the pharmacy in the same shopping strip you are paid 125% casual loading for work on Sundays.

If you sit down for lunch at the local restaurant you may be served by someone that is paid a loading of 50% whilst the food and wine that you consume is prepared by an employee that is entitled to 75% loading on their ordinary wage. Go figure that one?

Ninety-five per cent of retail businesses employ less than 19 staff and are more likely to apply minimum modern award wages than larger competitors. Coles and Woolworths supermarkets employ approximately 40% of the Australian food retail market workforce under enterprise agreements paying higher ordinary wages but not any additional penalties for work on Saturdays (save for casual loading) and an additional 50% loading for work performed on Sunday (70% casuals). Similarly Myer and David Jones pay no Saturday penalties to permanent staff. Casuals at Myer receive 80% loading and DJ’s 70% loading for work on Sunday.

It is estimated that average labour costs (including penalties,loadings and related wage costs) are approximately 47 per cent of total costs of operating a retail business in Australia. Similarly entertainment and hospitality businesses. Therefore, any adjustment to penalty rates potentially affects the financial bottom line of HERRC businesses, especially those that trade predominately on weekends and evenings.

Does any of this really matter?

I haven’t a clue what the Fair Work Commission will decide. Any institution responsible for creating such a bizarre and diverse regulatory regime is capable of anything. What is clear is the current system of penalties lacks a coherent rationale anchored in either equitable or economic grounds. The system can be made fairer but it must also be responsive to the competitive pressures faced by HERRC businesses.

I’ve decided not gamble on the outcome. I might keep my money in my pocket this time, and wait with Bill Shorten for the martians to land on Earth. The odds for success are much better than predicting the Fair Work Commission.