Is the sky falling on salaries?

The issue

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 was introduced to Parliament last week.

It proposes amendments which would have the effect of:

• ensuring that the specified penalty or overtime rates in modern awards cannot be reduced; and
• closing loopholes in the modern awards safety net that allow employers to “roll up” penalty and overtime rates into a single rate of pay that doesn’t fairly compensate award-reliant employees for remuneration they would have otherwise received.

The employer reaction

A couple of headlines about the federal government legislation to protect penalty rates caught my eye:

– HR Daily: “Penalty rates Bill a “backwards step” for employers”; and
– Dynamic Business: “Labor blocks business flexibility with new penalty rate laws”

Sounds like life will get tougher for employers, doesn’t it?

The truth

No, it won’t……..other than for businesses which were planning on reducing costs by reducing workers’ wages via cuts in penalty and overtime rates.  

Employers are already required by law to ensure employees are paid at least what they would be entitled to under any applicable industrial instrument ie a modern award or enterprise agreement.  

That includes penalty rates and overtime loadings. You can’t contract out of them but you can repackage them in individual flexibility agreements, common law contracts or enterprise agreements provided that employees are better off financially than they would be if the award was literally applied.

The amendment actually notes that it is about: “a single rate that doesn’t fairly compensate award-reliant employees for remuneration they would have otherwise received.” So it is saying you can’t pay people less than they would be entitled to under all of the monetary provisions of the award that covers them.

The explanatory memorandum to the bill also states that individual flexibility agreements and enterprise agreements are still available for compensating for setting off entitlements like overtime and penalty rates subject to satisfaction of the Better Off Overall Test ie the employee has to be better off under the agreement.

What it all means

This has been triggered by an application from an employer association to have an award varied to allow for exclusion of penalty and overtime rates via a flat fixed overboard payment.

Sadly, there are countless cases of employers underpaying workers by implementing just these sorts of arrangements via contracts or agreements which do not adequately compensate them based on the work that they do, when they do it and the conditions in which they do it.

This legislation will just make the obvious obligations that employers already have irrefutable and strengthen the case of wage theft prosecutions for employers who don’t comply.

It won’t reduce flexibility or productivity – it will just preserve what are already legal rights but it will be legislatively explicit now. 

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance with any issues like this in your business.