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2019 Election Primer, Part 3: Penalty Rates

8th May, 2019

This is the third in a series of posts discussing the major aspects of workplace relations policy in the lead-up to Australia’s federal election on 18 May 2019.

An edited version of this post was published in The Conversation, 8 May 2019: ‘Labor wants to restore penalty rates within 100 days – but what about the independent umpire?’

Penalty rates are a key issue in the federal election campaign. Labor is running hard on its pledge to restore the penalty rates cut by the Fair Work Commission in its 2017 decision, within 100 days of taking office.

Aligning with the ACTU’s #changetherules campaign, Labor is using the penalty rate reductions as part of a broader attack on the Coalition Government’s record on workplace relations, including wage stagnation, widespread wage theft and the growth of insecure work.

The Coalition is saying little about all this – still spooked by the electoral poison wrought by Work Choices more than a decade ago. Generally the Government falls back on claims about economic growth and tax cuts creating favourable conditions for the recovery of wages.

So what did the FWC decide about penalty rates in 2017, and what has occurred since then?

The penalty rate cuts are often discussed as if they applied across the board. However the FWC’s decision affected penalty rates in the federal awards applying to the following six sectors: fast food, retail, hospitality, pharmacies, clubs and restaurants.

The tribunal determined that the penalty rates for working on public holidays in these six awards would be reduced from 1 July 2017; and that the penalty rates for Sunday work in four of the awards would be reduced on a phased basis over four years from that date. For example, a full-time employee under the retail award had their Sunday rates cut from 200% of the normal hourly rate to 195% on 1 July 2017, then to 180% on 1 July 2018, with a further reduction to 165% to come on 1 July this year, then falling to 150% on 1 July 2020.

Additional payments for working irregular hours are a long-standing feature of Australia’s industrial relations system. Traditionally penalty rates were included in awards with two objectives in mind: to compensate workers for having to work overtime, on weekends or on public holidays; and to deter employers from requiring employees to work at these times.

However in reaching its decision, the FWC found that the deterrence objective is no longer relevant in setting public holiday or Sunday penalty rates. The FWC decision followed on from the Productivity Commission’s 2015 recommendations for penalty rate reductions. The PC Report considered that working on Sundays is far more common now in industries like hospitality, restaurants and retail, reflecting a broader shift to a ‘24/7 economy’. The FWC put this in terms of the ‘disutility’ (for workers) of Sunday work having lessened over time.

The union movement and the Labor Opposition have strongly criticised the tribunal’s decision in the two years since it was handed down. Labor very quickly introduced a bill to override the decision and restore the penalty rates of the 700,000 affected workers. The Government opposed this and a similar bill introduced by The Greens, enabling Labor and the unions to hammer the Prime Minister in the election campaign for ‘voting 8 times’ to cut penalty rates.  

Labor has also argued that over the recent 10-day Easter and Anzac Day public holiday period, the penalty rate cuts resulted in a loss of between $218 (for a fast food worker) and $369 (for a pharmacy employee). 

According to a report in the Canberra Times, the union/Labor-aligned McKell Institute has recently projected workers will be $2.87 billion worse off from further penalty rate cuts over the next three years if the Coalition Government is re-elected. 

Business groups have long claimed that reducing penalty rates will improve employment levels, a position endorsed by both the PC and the FWC. However, the Australia Institute published research last year indicating retail and hospitality were among the lowest industries for job growth in the first year after rates were cut.

The small business lobby group COSBOA admitted two weeks ago that the cuts had led to ‘no extra jobs on a Sunday’, although blaming this on the impact of above-inflation increases to the minimum wage. 

A campaign spokesperson for the Liberal Party was quoted as follows in the New Daily recently: ‘Bill Shorten knows it is the independent Fair Work Commission that sets penalty rates, not the government. In fact, it was Bill Shorten … who set up the review into penalty rates. He even appointed the umpire …’. 

The Coalition is gilding the lily a bit here. It has been no great defender of the industrial tribunal’s independence in the past. Under Work Choices it sidelined the Commission completely.

But it’s not a great idea to start over-ruling FWC decisions that are unpopular. Yes, the penalty rate cuts are unfair and arbitrary, reducing the take-home pay of low-paid workers. However we trust the tribunal to make these judgment calls. It’s a system that has worked well for Australia for over 100 years.

Instead, Labor should change the statutory criteria that are used by the FWC to review modern awards, as it has proposed in relation to the rules for setting the minimum wage – leaving that decision to the independent umpire, as it should be. 

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