Australian Fair Pay Commission´s First Minimum Wage Decision

On Thursday 26 October 2006, the Australian Fair Pay Commission (AFPC) awarded wage increases for employees who had previously relied upon state and federal awards for their wages.

The increase is significant, being:

• $22.04 per week for employees who earn more than $700 per week, and

• $27.36 per week for employees who earn less than $700 per week.

In addition, for those employees employed under awards that had not been updated to take into account the 2005 National Wage Case, they will receive an additional $17.00 per week increase.

The decision will apply to all employees under state and federal awards. The wages clauses of those awards have been removed from the awards and are now contained in new instruments called 'Australian Pay and Classifications Scales' (APCS). That is why the AFPC can amend them, rather than the various industrial relations commissions.

The decision will not apply to employees covered by pre-reform certified enterprise agreements or Australian workplace agreements (AWAs). And although the new rates will technically apply to employees covered by workplace agreements made after 27 March 2006, the impact is likely to be minimal. This is because most of these agreements already contain wage rates higher than the new federal minimum wage.

These wage increases take effect from midnight on 30 November 2006.

One of the recent Work Choices amendments was to establish the AFPC. It is given the responsibility, among other things, to:

• determine and adjust the federal minimum wage

• determine and adjust minimum classification rates of pay in the APCS

• determine and adjust special federal minimum wages for juniors, trainees (including school-based apprentices) and employees with disabilities

• determine and adjust minimum wages for piece workers, and

• determine and adjust casual loadings (section 22 of the Workplace Relations Act 1996 (Cth) (WR Act)).

Previously, this role was undertaken by the Australian Industrial Relations Commission (AIRC), through the Annual National Wage Case hearings.

The matters which must be considered have changed. The AFPC is required to have regard to:

• the capacity for the unemployed and low paid to obtain and remain in employment

• employment and competitiveness across the economy

• providing a safety net for the low paid, and

• providing minimum wages for junior employees, and employees to whom training arrangements apply, and employees with disabilities to ensure those employees are competitive in the labour market (section 23 of the WR Act).

On 1 May 2006, the AFPC invited written submissions from interested organisations and individuals to help form its first minimum wage determination. Almost 90 submissions were received from employer, employee, community and professional stakeholder organisations; 13 were received from government and/or government agencies; and over 80 were received from individuals and private businesses.

The decision has three key elements:

• an increase of $27.36 per week in the standard federal minimum wage (an increase of $0.72 per hour (from $12.75 to $13.47)

• an increase of $27.36 per week to all APCSs up to and including $700, and

• an increase of $22.04 per week in the APCS above $700 per week.

An APCS is a set of provisions relating to the pay and loadings for particular employees. If a state or federal award applied to your employees, then an APCS will now apply. An APCS must contain:

• a guaranteed basic periodic rate of pay for each hour that an employee works or a piece-rate of pay

• classifications, and

• coverage provisions.

The decision is expressed as taking effect from 1 December 2006, which is defined as meaning midnight on 30 November 2006. This distinction is important for those employers who have employees engaged on night-shift or 24-hour operations.

The increases set out above will apply to employees receiving the standard federal minimum wage as well as employees receiving a rate of pay included in an APCS. Employers who have made collective or individual agreements after the commencement of the Work Choices amendments (ie 27 March 2006) will also need to ensure that they comply with this decision.

The decision and the increases will not apply to employees:

• covered by the five-year transitional federal award system (ie an employee employed by a non-constitutional entity bound by a federal award)

• who have AWAs or certified agreements approved prior to the commencement of the Work Choices amendments (ie 27 March 2006). It will also have no practical impact on employees covered by workplace agreements entered into after this date if their current wage is higher than the new federal minimum wage, or

• covered by preserved state agreements.

Pay scales from a pre-reform federal wage instrument (predominantly federal and state awards) that were not adjusted for the AIRC’s 2005 Safety Net Review decision by the AIRC or a state industrial body, but

• were adjusted in accordance with the AIRC’s 2004 Safety Net Review decision (whether by the AIRC or by a state industrial authority), or

• received a safety net adjustment during the 12 months to 27 March 2006 (whether by the AIRC or by a state industrial authority), or

• took effect after the AIRC’s 2004 Safety Net Review decision,

are increased by $17 per week expressed as an hourly rate in addition to any other increase in this decision.

The increases awarded will ‘flow through’ to junior pay rates. Where there are existing formulas for the calculation of the wage rate (for example, 80 per cent of a specified award rate), the employee will continue to receive 80 per cent of the new, higher rate. Where there is no formula, the increase will be pro-rated so that the junior rate retains its relativity to the relevant award rate.

A similar approach will apply in relation to pay scales for employees to whom training arrangements apply (ie apprentices and trainees).

The casual loading has not been increased. However, casual employees will receive an increase through the general increase that adjusts their base level of pay as well a higher dollar value for the casual loading by virtue of the fact that the loading is applied to a higher base rate.

In relation to piece rates, the AFPC in its decision has decided to increase the minimum rates of pay by 5.65 per cent. However, the AFPC will allow submissions to be made on the ground that the adjustment will result in an anomalous outcome that is inconsistent with the AFPC’s intention to flow on the general increase to piece-rate workers.

The AFPC, in handing down its decision decided not to, at this stage, provide a new pay scale for employees to whom training arrangements apply. It has simply allowed the rate increases to ‘flow through’. However, the AFPC has indicated that it will initiate a wage review in 2007 to inform itself more fully on the issues and there is the possibility that it will determine a new scale in its 2007 decision.

Further, the AFPC decided not to make any adjustments to the casual loadings expressed in the pay scales or the default casual loading at this time.

Previously, an application would be made by the relevant unions to the AIRC to vary the wages in the Metal, Engineering and Associated Industries Award (Metals Award). The AIRC would hear submissions from the unions, government and employers, and then hand down a decision providing for a single dollar amount increase in respect of specific classification ranges in the Metals Award.

The internal wage relativities within the Metals Award would then allow for alterations to be made to the other categories of employees. From there, separate applications would need to be made by unions to ‘flow through’ this increase into other awards. This meant that employers would be able to wait until the relevant union applied to have the applicable award varied, thereby resulting in a ‘lag time’ between the variation of the Metals Award and the award applicable to an employer.

The AFPC’s decision provides that the increase will take effect from a specified date for all affected employees. Accordingly, unions will not have any need to seek to vary any awards to obtain the wage increase. In addition, as outlined above, there are two different increases awarded, with a higher increase for lower paid workers, based on a recognition that lower paid workers are more reliant on minimum wages than higher paid workers.

This decision means that for employers who have employees that are covered by this decision, there will be an obligation to increase their pay by the applicable amounts (as set out above) from midnight 30 November 2006. Employers should take steps to ensure that they will be in a position to comply, including ensuring that their payroll software is updated to implement the increases.

The AFPC stated that it will deliver its second general wage setting decision in mid 2007. At this stage, it should not be assumed that the AFPC will issue a decision on a yearly basis in the same manner as adopted by the AIRC.

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.