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As an employer, you should be aware of the different awards that set out the minimum requirements for employees in your industry. But, if you are frustrated with having to calculate the specific penalty rates for each employee, week in week out, 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. With the exception of high-level executives, most jobs in Australia are covered by a modern award. Generally speaking, a modern award sets out the minimum entitlements that an employee in that role or industry must be provided. These entitlements might include:

  • minimum wage;
  • 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 are better off. 

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 covered under the relevant modern award. 

For example, say an employee is entitled to a base rate of $20 per hour during the week and receives a 25% penalty rate for work on Saturdays. This makes their Saturday wage $25 per hour. This particular employee works 7.5 hours each day from Tuesday-Saturday, so their total pay is $787.50 per week.

Under an enterprise agreement, an employer might propose a base wage of $23 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 $862.50, and they are better off overall

It is essential to keep in mind that just because the employee received a higher base wage doesn’t 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 and 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.

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

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:

  • include unlawful content;
  • make the employees worse off; or 
  • undercut rights provided under the National Employment Standards.

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. 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. 


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