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It is critical that you understand the conditions of employment and minimum rate of pay that your employees are entitled to. Determining whether a modern award or enterprise agreement covers your business is the first step to ensuring that you pay your employees correctly. This article will discuss the differences between modern awards and enterprise agreements and explain how to determine which one will cover your business.

What is a Modern Award?

Modern awards are legal instruments which set out the standard terms and conditions of employment across various industries and occupations. Importantly, they outline the minimum entitlements for employees within their scope. These rights cannot be diminished or eliminated by an agreement between your business and your employees.

Modern awards outline various entitlements, such as: 

The minimum terms and conditions of employment vary between each modern award, so you should never assume that the terms and conditions of employment will apply consistently throughout all modern awards.

Industry and Occupational Modern Awards

Your employees will come under a modern award if they: 

  • work in an industry or occupation that has an applicable award; or
  • are performing duties covered within the relevant modern award’s classifications. 

For example, the General Retail Industry Award 2010 is an industry award that covers retail employees throughout Australia. By contrast, the Clerks Private Sector Award 2010 is an occupation award which covers employees engaged wholly or principally in clerical work, including administrative duties of a clerical nature. 

Award Classifications

A set of award classifications guides each modern award. These are a set of criteria that determine which employees each respective award covers. These include the employee’s:

  • duties;
  • responsibilities;
  • qualifications; and
  • experience.

Furthermore, each award could contain several levels of classification. This means the minimum wages payable to your employees may vary depending on their classification level. 

For example, someone with one year of experience might be covered by a lower award classification than someone with seven years of experience.

Changes to the Award Minimum Wage

The Fair Work Commission (the Commission) determines the national minimum wage every year. It typically also increases the minimum wages of each modern award. These new wage rates become effective from the first full pay period commencing after 1 July each year. Therefore, you must regularly review any changes to the modern awards which cover your business to ensure compliance.

What is an Enterprise Agreement?

An enterprise agreement is a collective agreement negotiated between an employer and a group of employees. They can replace the terms and conditions of employment provided for under a modern award. However, the employee’s rights must be greater under the agreement than the applicable award. These agreements tend to be helpful when certain occupations require specific arrangements that modern awards do not cater for. 

The law regulates the content of enterprise agreements. There are some mandatory terms which an agreement must include, such as:

  • an expiry date;
  • a dispute resolution procedure; and
  • a term that requires you to consult your employees about any major workplace changes.

The law also prohibits the use of some unlawful terms, including a: 

  • discriminatory term;
  • term that modifies the application of unfair dismissal procedures; and
  • term that is inconsistent with the general protections under the Fair Work Act 2009 (Cth).

Importantly, a majority of the employers covered by the enterprise agreement must be involved in the negotiation process and approve the final agreement.

The Process of Making an Enterprise Agreement

1. Negotiation

The first phase of the process involves negotiating and drafting the enterprise agreement. This process will take place between the employer, employees and their bargaining representatives. 

A bargaining representative is a person or group that each party can appoint to negotiate on their behalf. This could include: 

  • an employer or employee covered by the agreement;
  • a trade union with a member who is part of the agreement; or
  • any person appointed in writing by an employer or employee covered by the agreement.

2. The Vote

Employers have a right under the Act to propose an enterprise agreement and request that employees vote on it. However, there are several steps that an employer must take before they can exercise this right. This includes:

  • giving employees the required notice under the Act; and 
  • allowing employees access to all relevant documentation before the vote takes place.

3. Approval

If the vote is successful, you must lodge the enterprise agreement with the Commission for approval. Once the Commission receives the agreement, it must ensure that it meets all requirements relating to the: 

The BOOT involves the Commission making an overall assessment as to whether employees would be better off under the enterprise agreement than they would be if the relevant modern award applied.

Once an enterprise agreement is entered into and approved by the Commission, it may:

  • replace any applicable modern awards to act as the base terms and conditions of employment; or
  • incorporate the terms contained in the relevant modern award.

Why Would an Employer Enter Into an Enterprise Agreement? 

You might seek to implement an enterprise agreement because it is: 

  • generally more straightforward; and 
  • more administratively efficient in the long-term. 

Modern awards are often complicated and interpreting their application to each employee can be time-consuming. Therefore, the main benefit of an enterprise agreement is that you can: 

  • avoid expending time and energy on calculating wages; and 
  • focus your attention on running your business.

What if No Modern Award or Enterprise Agreement Applies to My Employees?

A modern award or enterprise agreement will apply to most employees. However, some roles will exist outside the governance of these instruments.

For example, high-level executives have not traditionally been covered by an award or agreement because of the: 

  • nature of their work; and 
  • seniority of their role. 

Where an employee has no modern award or enterprise agreement, they are considered “award and agreement free”. If this is the case, the employee will be entitled to the national minimum wage and the National Employment Standards (NES).

Key Takeaways

Modern awards are standardised industrial agreements that apply to all employees working in certain industries and occupations, outlining their minimum wage and working conditions. In contrast, enterprise agreements are negotiated between an employer and their employees to meet the specific needs of a particular organisation. A modern award will automatically apply to your employees unless an enterprise agreement replaces it. However, the enterprise agreement must create better overall conditions for your employees than they would have under a modern award. If you would like legal advice concerning modern awards or enterprise agreements, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.


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