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Many of your employees’ conditions of employment and minimum rates of pay will fall under a modern award or an enterprise agreement. However, it can be challenging to identify which industrial instrument applies. This article will discuss the differences between modern awards and enterprise agreements and explain how to determine which one will cover your business.

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The NES, Modern Awards and Enterprise Agreements 

Firstly, to further your understanding as an employer, it may be helpful to consider the workings of the National Employment Standards (NES), modern awards and enterprise agreements. 

Firstly, the NES set out 11 conditions for employment in Australia. Furthermore, the NES covers workplace conditions ranging from maximum weekly work hours to annual leave entitlements. The NES form the minimum workplace entitlements for all adult workers under the national workplace relations system. Therefore, these entitlements form the bedrock of employment relations. 

Secondly, modern awards are industry and occupation-based industrial instruments. The instruments can build upon (but can never replace) the minimum entitlements set out in the NES. Examples of modern awards include the General Retail Industry Award and the Security Services Industry Award. However, it is essential to note that not all your employees will fall under a modern award. In this case, the NES will form the minimum terms and conditions of employment.

Thirdly, an enterprise agreement is a collective agreement that the Fair Work Commission (FWC) must approve. If an enterprise agreement covers your business, it will override the modern award applicable to your industry. However, like modern awards, an enterprise agreement cannot provide anything less than the NES entitlements. 

What is a Modern Award?

Modern awards are legal instruments that set out the standard terms and conditions of employment across various industries and occupations. More often than not, they outline your employee’s minimum workplace entitlements. Significantly, you cannot diminish or eliminate your employee’s rights that a modern award outlines through your employment agreement. 

Modern awards outline various entitlements, such as: 

The minimum terms and conditions of employment vary between each modern award, so you should never assume that the terms and conditions of employment will apply consistently throughout all modern awards.

Industry and Modern Occupational Awards

Your employees will fall under a modern award if they: 

  • work in an industry or occupation that has an applicable award; or
  • are performing duties covered within the relevant modern award’s classifications. 

For example, the General Retail Industry Award 2020 is an industry award that covers retail employees throughout Australia. By contrast, the Clerks Private Sector Award 2020 is an occupation award that covers employees engaged wholly or principally in clerical work, including administrative duties of a clerical nature. 

Award Classifications

A set of award classifications guides each modern award. These are a set of criteria that determine which employees each respective award covers. These include your employees:

  • duties;
  • responsibilities;
  • qualifications; and
  • experience.

Furthermore, each award can contain several levels of classification. This means the minimum wages payable to your employees may vary depending on their classification level. 

For example, a lower award classification may cover someone with one year of experience in contrast to someone with seven years of experience.

Changes to the Award Minimum Wage

The FWC  determines the national minimum wage every year. Typically, the FWC increases the minimum wages of each modern award. These new rates become effective from the first full pay period commencing after July 1st each year. Therefore, you must regularly review any changes to the modern awards that cover your business to ensure compliance.

What is an Enterprise Agreement?

An enterprise agreement is a collective agreement negotiated between an employer and a group of employees. They can replace the terms and conditions of employment under a modern award. However, the employee’s rights under the agreement must surpass those in the applicable award. These agreements tend to be helpful when certain occupations require specific arrangements that modern awards do not cater for. 

Furthermore, the law regulates the content of enterprise agreements. For instance, there are some mandatory terms that an agreement must include, such as:

  • an expiry date;
  • a dispute resolution procedure; and
  • a term that requires you to consult your employees about any significant workplace changes.

The law also prohibits the use of some unlawful terms, including a: 

  • discriminatory term;
  • term that modifies the application of unfair dismissal procedures; and
  • term that is inconsistent with the general protections under the Fair Work Act.

Notably, most of the employers covered by the enterprise agreement must be involved in the negotiation process and approve the final agreement.

The Process of Making an Enterprise Agreement

1. Negotiation

The first phase of the process involves negotiating and drafting the enterprise agreement. This process will occur between the employer, employees and their bargaining representatives. 

A bargaining representative is a person or group that each party can appoint to negotiate on their behalf. This representative might include: 

  • an employer or employee who falls under the agreement;
  • a trade union with a member who is part of the agreement; or
  • any person appointed in writing by an employer or employee who falls under the agreement.

2. The Vote

Employers have a right under the Act to propose an enterprise agreement and request that employees vote on it. However, there are several steps that an employer must take before they can exercise this right. This includes:

  • giving employees the appropriate amount of notice under the Act; and 
  • allowing employees access to all relevant documentation before the vote takes place.

3. Approval

If the vote is successful, you must lodge the enterprise agreement with the FWC for approval. Once the Commission receives the agreement, it must ensure that it meets all requirements relating to the following: 

The BOOT requires the Fair Work Commission to assess whether employees would be better off under the enterprise agreement than they would be under the relevant modern award.

Once the Fair Work Commission approves an enterprise agreement, and both parties agree to it, it may:

  • replace any applicable modern awards to act as the base terms and conditions of employment; or
  • incorporate the terms contained in the relevant modern award.

Why Would an Employer Enter Into an Enterprise Agreement? 

Primarily, you may wish to enter into an enterprise agreement because it is generally more straightforward than modern awards. Additionally, it is typically more administratively efficient in the long term. 

In comparison, modern awards are often complex. Moreover, interpreting their application to each employee can be time-consuming. Therefore, the main benefit of an enterprise agreement are that you can: 

  • avoid expending time and energy on calculating wages; and 
  • focus your attention on running your business.

What if No Modern Award or Enterprise Agreement Applies to My Employees?

A modern award or enterprise agreement will apply to most employees. However, some roles will exist outside the governance of these instruments. For example, high-level executives have not traditionally fallen under an award or agreement because of the: 

  • nature of their work; and 
  • seniority of their role. 

Where an employee has no modern award or enterprise agreement, they are considered “award and agreement free”. If this is the case, the employee will be entitled to the national minimum wage and the National Employment Standards (NES).

Key Takeaways

Modern awards are standardised industrial agreements that apply to most employees across various industries and occupations. Furthermore, these instruments often outline the minimum wage and standard for employee working conditions. In contrast, enterprise agreements are negotiated between an employer and their employees to meet the specific needs of a particular organisation. A modern award will automatically apply to your employees unless an enterprise agreement replaces it. However, the enterprise agreement must create better overall conditions for your employees than they would have under a modern award. 

If your employee does not fall under an award or agreement, the national minimum wage and the minimum entitlements set out in the National Employment Standards will cover them.

If you want to clarify whether your business is covered by an award or enterprise agreement, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is the national minimum wage? 

The national minimum wage is a rate of minimum pay rate set out in the Fair Work Act. As of July 1st 2021, the national minimum wage is $20.33 per hour or $772.60 per week. However, a Fair Work Commission Expert Panel revises and changes the minimum wage rates each year. 

What is the better off overall test?

Before the Fair Work Commission approves an enterprise agreement, the agreement must pass the better off overall test (BOOT). The BOOT requires the Fair Work Commission to assess whether your employees would be better off under the enterprise agreement than they would be if the relevant modern award applied.

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