Reading time: 5 minutes

As an employer, you should be aware of the different awards that set out the minimum requirements for employees in your industry. Likewise, you need to be across specific penalty rates or loadings and other entitlements. Indeed, calculating these amounts for each employee, week in week out, can be frustrating. As such, you may wish to implement an enterprise agreement. This article will discuss what enterprise agreements are and how to implement one within your business correctly.

Enterprise Agreement v Modern Award

If you employ staff in Australia, you will probably have come across a modern award. Except for high-level executives and senior managers, most jobs in Australia are covered by a modern award. Generally speaking, a modern award sets out the minimum entitlements and conditions that businesses must provide to their employees in that role or industry. These entitlements might include:

  • minimum wage;
  • penalty rates;
  • overtime rates;
  • annual leave;
  • sick leave; and 
  • methods of dispute resolution.

Each modern award will handle these entitlements differently. You must know which award applies to your employees.

Enterprise agreements vary the terms of modern awards so that both you and your employee benefit. These agreements replace modern awards. However, the base pay rate cannot be lower than the modern award.

For example, an employer and employee might agree to eliminate penalty rates that the employee is entitled to under the award in exchange for a higher ordinary hourly rate.

Enterprise agreements should not allow employers to get around minimum employment standards and wages. Instead, they often result in higher pay for employees and reduced time spent on administrative work for employers. 

Why Would an Employee Accept an Enterprise Agreement?

On its face, anything which seeks to reduce an employee’s entitlements could cause alarm. But, you can only implement an enterprise agreement if your employees will be better off overall than if they were under the relevant modern award. Moreover, employees have bargaining powers within these agreements and are assured certainties regarding their conditions. This means they are probably more inclined to favour enterprise agreements. 

For example, suppose an employee is entitled to a base rate of $21 per hour on weekdays. On Saturday, they receive a 25% penalty rate. Therefore, their Saturday wage is $26.25 per hour. If this employee works 7.5 hours each day from Tuesday to Saturday, their total pay is $826.90 per week.

Under an enterprise agreement, an employer might propose a base wage of $24 per hour with no penalty rates. Although the employee now earns less on a Saturday, they make more during the week. Their total pay will now be $900, and they are better off overall. 

Importantly, just because the employee receives a higher base wage does not mean that they will always be better off overall.

Why Would an Employer Enter Into an Enterprise Agreement?

Many employers seek to implement an enterprise agreement as it is often simpler and more efficient in the long term. Modern awards can be complex. Notably, analysing their application to each employee can be time-consuming. Costs associated with accounting and payroll can increase when employers need to calculate:

  • meal allowances; 
  • penalty rates; and 
  • the overtime applicable to individual employees.

With an enterprise agreement, employers can take their attention away from calculating wages and spend more time focussing on the running of the business. Indeed, they allow for greater flexibility allowing for a mutually beneficial agreement with the potential for greater employment benefits and progression opportunities. 

Furthermore, employees will not take industrial action and strike if they work under an enterprise agreement. Therefore, an enterprise agreement may be beneficial for employees concerned that the requirements under the modern award may cause employees to take industrial action.

Employment Essentials Factsheet

As an employer, understand your essential employment obligations with this free LegalVision factsheet.

Download Now

Implementing an Agreement

The Fair Work Commission (FWC) must review all enterprise agreements before you can implement them. The FWC will not approve enterprise agreements which:

Additionally, enterprise agreements cannot include several terms, including those that;

  • discriminate; 
  • go against the general protections provisions of the Fair Work Act;
  • take away an employee’s right to unfair dismissal claims;
  • adjust who is entitled to employee rights under the Fair Work Act.

Key Takeaways

An enterprise agreement is a useful tool that allows employers and employees to reach an agreement that will benefit both parties. Notably, employers will save time and hassle worrying about applying different awards to different employees, and employees benefit by receiving a better wage overall. 

If you think that an enterprise agreement could be a good solution for your business, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

Is an enterprise agreement better than following the modern award?

The question here is whether it is better for your business. Enterprise agreements allow for negotiations, consistency across all employees and could save you the mental labour of calculating these pay rates. It also simplifies the multiple modern awards that can cover multiple employees. It also allows you to tailor the pay rate and employee benefits to your business. However, enterprise agreements can be a disadvantage due to their minimal flexibility. Likewise, they take time to plan and negotiate, which could be costly. 

Can enterprise agreements benefit employees?

Yes. These agreements allow them a say in negotiations, bargaining and being certain of their employment terms and conditions. The goal for these agreements is to benefit the employee more overall than the modern award would.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards