Australia: Two years on: are you effectively dealing with modern awards?

Last Updated: 27 June 2012
Article by Brett Feltham and Georgos Papanastasiou

It has been almost two and a half years since the new modern award system was introduced on 1 January 2010.

Employers, some of whom have employees that are covered by a modern award for the first time as a result of the wider reach of the new system, have had time to familiarise themselves with the new system, and have had to determine how to meet their obligations in a commercial manner.

Here are our top tips for dealing effectively with the application of modern awards to your workforce:

1. Enter into high income guarantees

Employers can exclude the operation of modern awards that cover employees earning over $118,100 per year ($123,300 from 1 July 2012, indexed annually) by guaranteeing their annual earnings. This amount excludes payments that cannot be determined in advance (e.g. commissions, bonuses or overtime), reimbursements and compulsory superannuation contributions.

The guarantee takes the form of a written undertaking by the employer, which an employee may agree to. Importantly, an employer can make the acceptance of a guarantee a condition of an employee accepting employment. If the undertaking is given, and accepted by the employee, and certain other requirements are met, the employee becomes a "high income employee" and the relevant modern award will not apply to the employee. However, the relevant modern award will still cover the employee, allowing the employee to claim the protection from unfair dismissal available under the Fair Work Act 2009 (Cth).

2. Enter into individual flexibility agreements ("IFA")

IFAs between employers and individual employees allow for limited variations to an applicable modern award in order to meet the genuine needs of employers and individual employees, at the same time as ensuring minimum employee entitlements and protections are not undermined.

IFAs can only vary arrangements for when work is performed (such as working hours), overtime rates, penalty rates, allowances, and leave loading. No other provisions of modern awards can be varied by an IFA, and an employer cannot ask a prospective employee to agree to an IFA as a condition of employment. In contrast, if an enterprise agreement allows an IFA to be entered into, the only restrictions on what provisions may be varied by an IFA will be any restrictions contained in the agreement itself, which will specifically stipulate what provisions can be varied.

However, since an IFA varying a modern award can generally be terminated by either the employer or employee giving as little as 28 days written notice to the other, an IFA's ability to provide long term certainty for working arrangements is somewhat limited.

3. Pay annualised salaries

Some modern awards, such as the Banking Finance and Insurance Award 2010 and the Clerks – Private Sector Award 2010, expressly allow for the payment of annualised salaries in place of minimum wages, allowances, overtime rates, penalty rates, and annual leave loading provided for in the modern award, subject to certain requirements being met. This includes that the annual salary must be no less than the amount the employee would have received under the modern award for the work to be performed. Further requirements apply, so seek advice to make sure they are met.

4. Keep track of variations to modern awards

Modern awards are regularly varied by Fair Work Australia ("FWA"). For example, and as we wrote in our Employment Law e-alert of 1 June 2012, the minimum wage panel of FWA recently determined that from the first full pay period on or after 1 July 2012 there will be a 2.9% increase in hourly modern award minimum rates of pay across the board.

FWA is currently in the process of conducting a review of all modern awards (see tip number 9 below). This will likely result in variations to many modern awards.

It is important to regularly check for variations, and to ensure that you are referring to the most current version of the modern award.

5. Check if there are any restrictions relating to superannuation contributions

Some employers are unaware that many modern awards stipulate specific or default superannuation funds into which an employer's superannuation contributions must be deposited.

Where your organisation has employees covered by different modern awards, be sure to check the restrictions relating to superannuation contributions in each modern award, since the restrictions can differ. Do not assume that complying with the provisions relating to superannuation contributions in one modern award will mean that you have complied with the requirements in each modern award applicable to your workforce.

Getting this right from the start can prevent breach of the relevant modern award(s), not to mention sparing your organisation the administrative hassle of changing superannuation contribution arrangements to accord with the modern award requirements.

6. Understand and comply with the transitional provisions

Certain monetary entitlements under most modern awards are subject to transitional provisions, which smooth out the difference between pre-modern and modern award entitlements over a four year period (from 2010).

For example, many awards phase-in or phase-out certain monetary entitlements in instalments of 20 per cent per year, depending on whether the entitlement under the modern award exceeds, or is less than, the equivalent premodern award entitlement.

The operation of these transitional provisions ends on the first full pay period after 1 July 2014, at which point the modern award entitlements must be paid in full.

Although intended to be easily applied, in practice, employers often encounter difficulties in applying transitional provisions, so specialist advice is recommended.

7. Include an "absorption" clause in employment contracts

Many transitional provisions in modern awards also allow monetary obligations under that modern award to be absorbed into over-award payments made by an employer. However, the scope of those provisions is limited, in that it only applies to monetary obligations under the relevant modern award, and those transitional provisions will end on 1 July 2014. It is therefore good practice to ensure that a properly drafted "absorption" or "off-setting" clause, which is broad in coverage and includes any other payments legally owed to the employee, is included in your organisation's employment contracts.

8. Do not unwittingly incorporate modern awards into employment contracts

Generally, a modern award is not taken to be automatically incorporated into the employment contract of an employee covered by the modern award. However, where a modern award is expressly referred to in a written employment contract, there may be a risk, depending on the language used, that the terms of that modern award may be incorporated, or turned into contractual obligations. If this is successfully argued, it could give an employee additional grounds on which to base a claim for breach of the relevant modern award, as well as potentially widen the available remedies. If in doubt as to the language required, seek advice.

9. Modern Award Review 2012: Have your say

FWA is currently conducting the first review of modern awards since they commenced. The 2012 review is dealing with applications to vary most awards, and the review process is a good opportunity to deal with modern award conditions that operate unfairly, inconsistently or inflexibly, and to manage concerns about modern award coverage.

Participation in the review process will also allow employers to engage on issues of concern to business, such as the need to maintain and expand annualised salary provisions, bring minimum engagement provisions into line with practical limits, and to include flexibility in superannuation funds into which contributions can be made. At the same time, unions are also engaging on these, and their own concerns.

Although the deadline for applications to vary a modern award has passed, participation in hearings for existing applications is still possible. We recommend you participate to ensure the review process is a success for your business.

Strengthened employment and workplace relationS capability in new South waleS

Hunt & Hunt is pleased to welcome Brett Feltham, Partner, who has joined the partnership of Hunt & Hunt. Based in our Sydney office, he heads up the employment and workplace relations practice in New South Wales. Brett and his team have expertise in all aspects of employment and workplace relations, and also specialise in employee remuneration and benefits.

Brett is joined by Shawn Skyring, Special Counsel, who is based in our North Ryde office, and by Mandi Xu, Associate, and Georgos Papanastasiou, Lawyer, both of whom are based in our Sydney office.

Brett and his team expand Hunt & Hunt's national employment and workplace relations practice. Please contact us below if you have any queries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.