Most Read Contributor in Australia, September 2016
The Fair Work 2009 (Cth) (FW Act) requires employers to
calculate payments for annual leave, personal carer's leave and
redundancy using the employee's 'base rate of pay'.
The base rate of pay is the rate of pay payable to the employee
for his or her ordinary hours of work. It excludes incentive-based
payments and bonuses, loadings, monetary allowances, overtime or
penalty rates, and any other separately identifiable amounts.
The FW Act requires payments in lieu of notice to be calculated
using the 'full rate of pay', which includes all those
separately identifiable amounts excluded from the base rate of
In Maughan Thiem Auto Sales Pty Ltd v Cooper 
FCAFC 94, the Court considered whether a motor mechanic's base
rate of pay included an 18% loading. The employee's employment
contract described the loading as a "penalty rate" for
the afternoon shift he worked.
The applicable modern award provided for an 18% shift loading.
The employee argued the 18% referred to in his contract was not a
premium or penalty. Rather, it was part of the agreed variation to
the contract to provide for a pay increase "for all
The Court rejected this argument. The Court found the contract
provided for a separately identifiable "penalty rate" for
working the afternoon shift reflecting the terms of the award, and
therefore it was to be excluded from the employee's base rate
The Court observed the FW Act definition of base rate of pay
does not just exclude award-derived penalty rates. This is shown by
the fact bonus payments are excluded, even though they are not
typically the subject of award entitlements.
Implications for employers
The position in Mr Cooper's case would have been different
if his employee's contract had been silent as to a shift
allowance or had simply stated the remuneration was inclusive of
any or all penalties or allowances. Employers should consider this
when proposing 'all-in' rates to deal with non-wage
monetary entitlements arising under modern awards. All-in rates are
a convenient way to deal with additional monetary entitlements, but
they might in fact result in an obligation to make payments for
annual leave, personal carer's leave and redundancy at a level
which exceeds the FW Act safety net. If an employer wishes to use
an all-in rate of pay it might want to negotiate provision in the
employment contract to use the base rate of pay when calculating
annual leave, personal carer's leave and redundancy pay.
The situation is more complex where a motor vehicle is part of
the employee's remuneration package and the employee elects to
receive an allowance in lieu of the provision of a vehicle. While
this vehicle allowance is a separately identifiable monetary
allowance, it is also part of the agreed pay to the employee for
ordinary hours of work. An employer could not avoid paying the
allowance during leave taken by the employee because it is part of
the employee's agreed salary. Therefore, it is likely the
calculation of paid leave and redundancy pay under the FW Act would
require the inclusion of vehicle allowance when it is part of an
employee's salary package for ordinary hours of work.
When the employment of an employee ceases, the FW Act requires
payment of unused accrued annual leave equal to the amount payable
to the employee if she/he had taken the period of leave. If the
terms of an employee's employment provide for payment during
annual leave of amounts in addition to wages (e.g. vehicle
allowance, leave loading, commissions on completed sales), then it
is likely the FW Act requires these items to be included in the
measure of pay to be used by the employer to calculate annual leave
payments on termination of employment.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Treasurer Scott Morrison recently announced changes to a number of 2016 Budget superannuation contribution measures.
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”
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).