The Fair Work Commission cuts penalty rates: What it means for your business

March, 2017

By Lisa Anaf, Partner and Eleanor Downie, Lawyer 

In a historic ruling, the Full Bench of the Fair Work Commission (the FWC) has decided to reduce penalty rates across a number of Awards in the hospitality and retail industries.

The awards affected by the FWC’s decision are as follows:

The central element of the FWC’s decision was on reductions to Sunday and public holiday penalty rates, and changes to late night loadings in a limited number of Awards.

A summary of key changes is provided below:

Changes to Sunday Penalty Rates

Lisa Anaf 1

The most significant reduction is in the penalty rate for full and part time retail and pharmacy employees – who will have their Sunday penalty rates reduced from double time, to time and a half.

The FWC also made the decision to only reduce the Sunday penalty rate for Fast Food Award level 1 employees, finding that “career” employees at level 2 and 3 were likely to suffer greater “disutility” in having to work on Sundays.

Importantly the FWC also rejected a proposal that employees be granted a right to refuse work on a Sunday. In relation to the Retail Award, the FWC noted that weekend work is now a feature of the retail industry.

Changes to Public Holiday Rates

Lisa Anaf 2

The FWC acknowledged that the expectation (and practice) was that a vast majority of employees would not work on public holidays. However, it emphasised that the hospitality and retail sectors have a number of features which distinguish them from other industries, and that public holiday work was far more common.

Late Night Loadings

At this stage, the FWC’s changes to late night loadings will only affect employees covered by the Fast Food and Restaurant Awards.

In short, employees under both awards will now be paid a 15% loading for work performed between the hours of midnight and 6.00am.

The FWC also varied the late night penalty under the Fast Food Award to make it consistent with the arrangement in the Restaurant Award. The 10% loading for evening work for both fast food and restaurant employees will now only apply to work performed between 10pm and midnight, instead of the current 9.00pm and midnight span of hours under the Fast Food Award.

What about Saturday penalty rates?

The FWC undertook a thorough review of Saturday penalty rates in the Hospitality, Fast Food, Restaurant and Retail Awards, and was largely satisfied that the current rates provided a “fair and relevant minimum safety net”. A review into Saturday penalty rates in the Clubs and Pharmacy Awards, however, has yet to be undertaken.

As such, there are no changes to Saturday penalty rates at this time.

When do the changes take effect?

After some discussion about a staggered commencement of the various changes, the FWC has confirmed that the changes will now become operative from 1 July 2017.

Sunday penalty rates

The FWC did not reach a conclusion as to exactly how the changes to Sunday penalty rates will be implemented, other than to note that the changes will require a “transitional arrangement” involving a series of annual adjustments that will span at least two, but less than five years.

The FWC has invited submissions from parties in relation to how best to achieve this.

What is clear is that the FWC intends that the transitional changes to Sunday penalty rates will start to take effect from 1 July 2017.

Public holiday rates

The FWC was of the view that given the impact of public holiday changes will be less than the changes to Sunday penalty rates, it was fair to commence the reduction in public holiday rates in full on 1 July 2017.

Late night penalties

The FWC found that its variations to late night penalties would have limited impact so the changes will take effect on 27 March 2017.

So can I just reduce an employee’s pay on a Sunday, late night or public holiday?

Unfortunately the answer to question is not as simple as you might hope.

Whilst the specified awards will start to incorporate lower rates on particular penalty shifts as early as 27 March 2017, an employee’s terms may also be governed by an enterprise agreement and / or contract of employment and this may affect an employer’s ability to unilaterally reduce an employee’s pay.

It is essential that employers take into account all terms that govern an employee’s employment to ensure that you do not accidentally expose the business to any allegation of underpayment.

We strongly recommend that before implementing any reductions in penalty rates for existing employees that you seek advice on the totality of any applicable employee terms to ensure that you do not become the next scalp.

Contact Mills Oakley

To get specific advice as to how your business will be affected please do not hesitate to contact:

Lisa Anaf

Lisa Anaf | Partner
T: +61 3 9605 0857


  • Workplace Relations, Employment & Safety

  • Privacy Policy | Terms of Use