Loaded rates of pay

An agreement can include loaded rates of pay which compensate for benefits provided for in the relevant modern award. In circumstances where an award benefit is incorporated into the agreement hourly rate of pay, that rate will need to be increased to compensate for the removal of award benefits that would no longer apply.

In addition, the hourly rate of pay would need to reflect the work arrangements of an employee. For example, if an employee were to predominately work weekends, the employee's agreement rate of pay would have to be increased to take into consideration a greater proportion of weekend penalties to ensure that the employee was better off overall.

Benefits that can be incorporated into a loaded rate include:

• shift allowances
• weekend and public holiday penalties
• annual leave loading
• reasonable additional hours
• overtime – as well as overtime for work performed in addition to ordinary hours, instances where the agreement span of hours has been modified, the modern award generally applies overtime for work performed outside the span, which should be factored into the hourly rate, and
• work related allowances.

Loaded rates that provide for the pre-payment of paid annual leave or personal/carer's leave (except in accordance with cashing out terms in section 93 of the Fair Work Act 2009) cannot be included in enterprise agreements as they contravene the NES.[1]

In Re Canavan Building Pty Ltd,[2] a Full Bench of the Fair Work Commission found that terms that provide for pre-payment of paid annual leave exclude the NES entitlement to paid annual leave in section 87(1) of the Fair Work Act and the requirement for payment in respect of annual leave in section 90(1). Section 55(1) of the Fair Work Act provides that a term of an enterprise agreement must not exclude the NES or any provision of the NES.

The Fair Work Act requires that the payment for annual leave be made at the employee's base rate as it is at the time the leave is taken.[3] A loaded rate which incorporates annual leave requires employees to fund any time taken off work, therefore excluding the NES provisions for annual leave.[4]

Additionally, the pre-payment of annual leave constitutes cashing out of annual leave. The Fair Work Act specifies that a cashing out provision requires a minimum accrual of four weeks' paid leave to remain in place, and a written agreement between the employer and the employee in order for the cashing out to occur. The Full Bench in Canavan found that the terms providing for a loaded rate in relation to paid annual leave constituted a cashing out provision that was not in accordance with the requirements of section 93.[5]

A test case of the Full Bench of the Commission in June 2018 looked at how the better off overall test (BOOT) is properly to be applied to agreements containing loaded rates.[6] The decision concerned 5 applications for the approval of enterprise agreements which provided for loaded or higher rates of pay.

This issue became particularly pertinent since a first instance decision to approve an agreement applying to a major Australian retailer and its employees was quashed on appeal.[7] The agreement in question provided for loaded ordinary hourly rates which were higher than those in the relevant modern award and were intended to compensate for lower penalty rates for evenings, weekends and public holidays. The Full Bench found that the agreement did not pass the BOOT because the loaded rates in the agreement disadvantaged those employees who worked primarily at times which attracted lower penalty rates under the agreement as compared to the award.

Principles

The Full Bench held that the following 11 principles apply to the application of the BOOT to a loaded rates agreement:

1. The BOOT requires every existing and prospective award covered employee to be better off overall under the agreement for which approval is sought than under the relevant modern award. If any such employee is not better off overall, the agreement does not pass the BOOT.
2. Section 193(7) permits the Commission to assume that if a class of employees to which a particular employee belongs would be better off under the agreement than under the relevant modern award, then the employee would be better off overall in the absence of evidence to the contrary. However the selection of class for the purpose of s. 193(7) will only be of utility if the agreement affects the members of the class in the same way such that there is likely to be a common BOOT outcome. If the Commission is not satisfied on the evidence that an existing or prospective award covered employee is not better off overall, the Commission cannot approve the agreement, at least not without undertakings or in the confined circumstances set out in s. 189.
3. The application of the BOOT to a loaded rates agreement will, in order for a meaningful comparison to be made, require an examination of the practices and arrangements concerning the working of ordinary and overtime hours by existing and prospective employees that flow from the terms of the agreement. This will likely require classes to be identified based on common patterns of working hours, taking into account evening, weekend and/or overtime hours worked.
4. The starting point for the assessment will necessarily be an examination of the terms of the agreement in order to ascertain the nature and characteristics of the employment for which the agreement provides or permits. For example if an enterprise agreement makes express provision for employees to be required to work ordinary hours on weekends, those provisions cannot be ignored for BOOT purposes simply because the employer asserts it does not currently utilise those working hours or roster patterns.
5. In the case of existing employees, this may involve an examination of existing roster patterns worked by various classes of employees as at the test time. The use of sample rosters to compare remuneration produced by a loaded rates pay structure compared to the relevant modern award may be an effective method of doing this. There may be objective evidence that a particular pattern of working hours or roster pattern permitted by an enterprise agreement is not practicable, or cannot or is unlikely to be worked.
6. In the case of prospective employees, the assessment will necessarily involve a degree of conjecture. In the case of an enterprise operating at a defined workplace or workplaces, the Commission may be in a position to make sensible predictions about the basis upon which prospective employees might be engaged based on the roster patterns worked by existing employees. However if a business is small and/or still at the development stage, or the agreement would cover a wider range of classifications, work locations and/or roster patterns that are not in existence as at the test time, useful predictions may not readily be drawn from the way in which the existing workforce operates. In that situation the assessment will require an examination of the terms of the agreement in order to ascertain the nature and characteristics of the employment which the agreement provides for or permits.
7. If the information concerning patterns of working hours needed to assess whether a loaded rates agreement passes the BOOT is not contained in the employer's Form F17 statutory declaration accompanying the approval application, it may be necessary for the Commission to request or require the production of such information.
8. (8) The BOOT involves the making of an overall assessment as to whether an employee would be better off under the agreement, which necessitates identification of the terms in the agreements which are more and less beneficial to the employee than under the relevant award.
9. The overall assessment required will essentially be a mathematical one where the terms being compared relate directly to remuneration. The assessment will be more complex where the agreement contains some superior entitlements which are non-monetary in nature, accessible at the employee's option or which are contingent upon specified events occurring.
10. In respect of non-monetary, optional or contingent entitlements in an agreement, the assumption cannot readily be made that they have the same value for all employees. In the case of a contingent benefit, it will be necessary to make a realistic assessment about the likelihood of the benefit crystallising during the period in which the agreement will operate.
11. Where a loaded rates agreement results in significant financial detriment for existing or prospective employees compared to the relevant award, it is unlikely that a non-monetary, optional or contingent entitlement under the agreement will sufficiently compensate for the detriment for all affected employees such as to enable the agreement to pass the BOOT.[8]

Examples

Having regard to the above principles, it is possible to give examples of the type of loaded rate structures which are capable, on proper analysis, of passing the BOOT.

The examples below are based on the Security Services Industry Award 2010 [MA000016] (Security Award), and use the Security Officer Level 1 classification rate for which the base ordinary rate at 1 July 2018 is $808.00 per week or $21.26 per hour rounded to the nearest cent.

In each case it is necessary to formulate a rate for a specific roster scenario. In no case is any amount of overtime incorporated into the loaded rate.[9]

Related information

• Loaded rates – common defects & issues

Calculations

The loaded rate calculated in each of the roster scenarios 1 – 18 from the Loaded Rates Agreements decision[10] is the appropriate loaded rate that would be required to compensate employees for not receiving the following Penalty Rates contained in clause 22.3 of the Security Award when working on the stipulated roster in each scenario:

• Night shift penalties of 21.7% for working between 6pm to 12am and 12am to 6am Monday-Friday
• Permanent night shift penalty of 30% for working permanent nights under the Award. This means work performed during a night span over the whole period of a roster cycle in which more than two thirds of the employee's ordinary shifts include ordinary hours between 0000 hrs and 0600 hrs
• Saturday penalties of 50%
• Sunday penalties of 100%
• Public holiday penalties of 150%

Note: The Scenarios use the Security Award ordinary rates effective from 1 July 2018. Both the pay rates and the hours worked have been calculated to 2 decimal places.

Allowances

The loaded rates have been calculated assuming employees in the scenarios are not entitled to any award allowance including leading hand allowance, relieving officer's allowance and first aid allowance.

Annual leave

Employers must pay an employee their annual leave entitlements in accordance with clause 24.6 of the Security Award. The loaded rate may not adequately compensate employees for their annual leave entitlement under the Security Award if annual leave is paid at the loaded rate.

Casual loading

The loaded rate also takes into account the casual loading where applicable.

Better off overall test (BOOT)

The loaded rates in the scenarios would only be appropriate for the relevant roster scenario to pass the BOOT if employees otherwise are entitled under the hypothetical agreement to other terms or conditions of employment which are the same as or at least equally beneficial to those in the Security Award, and the agreement does not contain any other provision not contained in the Security Award which would be detrimental to employees.

Public holidays

Where the model makes provision for public holidays it is assumed that the public holidays are worked on a weekday.

Loading

The loading is the difference between the notional weekly rate under each scenario plus a 'buffer' amount of $5 or $10 (depending on the situation), and the award weekly minimum rate. This loading is converted to a percentage and rounded up to derive the loaded rate percentage, being the percentage the rate needs to be above the Security Award rate to ensure the loaded rate will adequately compensate employees under each roster scenario. The rounded percentage was then used to calculate the weekly loaded rate which was then verified in the models below.

Excerpt from clause 14 of the Security Award – Minimum wages

14. Minimum wages

14.1 An employer must pay full-time employees minimum weekly wages for ordinary hours (exclusive of penalties and allowances) as follows.

Example – Permanent employees

In respect of permanent (that is, non-casual) full-time employees, the following tables set out a loaded rate which would pass the BOOT on the identified roster scenario, assuming that there is no other provision in the agreement superior or inferior to the award which is required to be taken into account:

Modelling – Scenario 1 – Permanent employee

A Level 1 permanent employee working a 38 hour week for each week of the year which comprises of the following:

• 1/7 of their ordinary hours worked on each day of the week:
  (38 hours ÷ 7 = 5.43 hours)
• Mon-Fri hours are evenly split between day shift work and night shift work:
  (5.43 hours x 5 (Mon-Fri) ÷ 2 (day shift or night shift) = 13.57 hours)
  (13.57 hours - 0.44 hours (half public holiday) = 13.13 hours)
• Given public holidays are likely to be worked in the security industry this employee also works 6 public holidays a year for 7.6 hours on each public holiday. The figure in a weekly model to proportion the public holidays to the weekly model would approximately be represented by:
  (6 days x 7.6 hours ÷ 52 weeks = 0.88 hours).

The loaded rate for each Security Award classification for a full-time employee on this roster pattern is below:

* rounded up to nearest whole number

The above roster scenarios may also be adapted for part-time employees. If part-time employees work a proportion of the working hours specified for any of the above rosters consistent with the amount of hours they work each week, the loaded rate required to pass the BOOT will be the same. For example, in Scenario 1, if a part-time employee is engaged to work 1/7^th of the contracted 30 hours per week each day Monday to Sunday, with the work split evenly between night shift and day shift, and 6 public holidays of 6 hours each are worked each year, the loaded rate necessary to pass the BOOT will remain at $28.49.

Example – Part-time employees

Loaded rates for roster scenarios specific to part-time employees may be developed, such as the following:

Modelling – Scenario 6 – Part-time employee

A Level 1 part-time employee working a 30 hour week for each week of the year which comprises of the following:

• Employee works two 7.6 hour shifts on a Saturday in a 4 week period. This is represented in the weekly model as:
  (2 days x 7.6 hours ÷ 4 weeks = 3.8 hours)
• Employee works two 7.6 hour shifts on a Sunday in a 4 week period. This is represented in the weekly model as:
  (2 days x 7.6 hours ÷ 4 weeks = 3.8 hours).
• Other hours are worked by the employee on day shift:
  (30 hours - 3.8 hours (Saturday) - 3.8 hours (Sunday) - 0.44 hours (Public holidays) = 21.96 hours)
• Given public holidays are likely to be worked in the Security Industry this employee also works 3 public holidays a year for 7.6 hours on each public holiday. This is represented in the model as:
  (3 days x 7.6 hours ÷ 52 weeks = 0.44 hours)

The loaded rate for each Security Award classification for a part-time employee on this roster pattern is below:

* rounded up to nearest whole number

Where an agreement seeks to provide for a single loaded rate at a given classification level, but also provides that employees may be directed to work hours which may fit into any of the above scenarios, then it will be necessary for the loaded rate to be at least as high as the highest rate from all of the scenarios above.

Alternatively, the agreement might provide for employees to be assigned specific roster patterns which contain express limitations on the number or proportion of hours to be worked at certain times (such as on evenings or weekends) which would attract the payment of penalty rates under the relevant award.

Thus if an agreement provided that a full-time or part-time employee, as the case may be, could be assigned to any one of the above roster scenarios at any given time, then the employee would only need to be paid the loaded rate for the scenario while on the roster in order for the agreement to pass the BOOT.

The position becomes more difficult with respect to casual employees. Casual employment may consist of engagement under hourly or daily fixed term contracts, and be used for the performance of short-term and/or intermittent work on an 'on-call' basis. In this case, the casual employee is not guaranteed work on any specified days or for any specified duration. In an enterprise agreement which provides or permits casual employment of this nature, it is difficult to envisage how it would be possible to provide for a loaded rate for casual employees that was capable of passing the BOOT. This is because it would always be possible for the casual employee, in a given pay period, to be engaged to work on a day or at a time which would attract the payment of penalty rates under the relevant award and not to be engaged on any other hours or at any other times. In that circumstance, if the agreement provided for a loaded rate which was less than the highest penalty rate provided for in the relevant award, the employee would necessarily be disadvantaged as compared to the award.

Example – Casual employees

An enterprise which utilises casual employees to perform regular and ongoing work (so that casual employment is simply used as an alternative payment and entitlement system rather than to describe engagement on a truly casual basis), an enterprise agreement might provide casual employees with an entitlement to guaranteed hours and rosters.

In that circumstance it may be possible to construct a loaded rate for them, in the same way as for full-time and part-time employees above, which is capable of passing the BOOT based on particular prescribed rosters.

For example, the following loaded rates (which are inclusive of the 25% casual loading) for Level 1 casual employees covered by the Security Award, who work full-time hours would pass the BOOT if the agreement contained no offsetting disadvantageous provisions:

Modelling – Scenario 10 – Casual employees

A Level 1 casual employee working a 38 hour week for each week of the year which comprises of the following:

• 1/7 of their ordinary hours worked on each day of the week:
  (38 hours ÷ 7 = 5.43 hours)
• Mon-Fri hours are evenly split between day shift work and night shift work:
  (5.43 hours x 5 (Mon-Fri) ÷ 2 (day shift or night shift) = 13.57 hours)
  (13.57 hours - 0.44 hours (half public holiday) = 13.13 hours)
• Given public holidays are likely to be worked in the security industry this employee also works 6 public holidays a year for 7.6 hours on each public holiday. The figure in a weekly model to proportion the public holidays to the weekly model would approximately be represented by:
  (6 days x 7.6 hours ÷ 52 weeks = 0.88 hours).

The loaded rate for each Security Award classification for a casual employee on this roster pattern is below:

* rounded up to nearest whole number

Example – Casual employees

The following loaded rates (inclusive of the casual loading) would also pass the BOOT for casual employees working 30 hours or 15 hours per week, again assuming there were no offsetting disadvantages in the agreement):

Modelling – Scenario 18 – Casual employees

A Level 1 casual employee working a 15 hour week for each week of the year which comprises of the following:

• Employee works two 7.6 hour shifts on a Saturday in a 4 week period. This is represented in the weekly model as:
  (2 days x 7.6 hours ÷ 4 weeks = 3.8 hours)
• Employee works two 7.6 hour shifts on a Sunday in a 4 week period. This is represented in the weekly model as:
  (2 days x 7.6 hours ÷ 4 weeks = 3.8 hours)
• Other hours are worked by the employee on permanent night shift
  (15 hours - 3.8 hours (Saturday) - 3.8 hours (Sunday) - 0.44 hours (Public holidays) = 6.52 hours)
• Given public holidays are likely to be worked in the security industry this employee also works 6 public holidays a year for 7.6 hours on each public holiday. The figure in a weekly model to proportion the public holidays to the weekly model would approximately be represented by:
  (6 days x 7.6 hours ÷ 52 weeks = 0.88 hours).

The loaded rate for each Security Award classification for a casual employee on this roster pattern is below:

* rounded up to nearest whole number

Passed the better off overall test – loaded rates (with undertakings)

Re Dominance Enterprises Pty. Ltd. T/A Dominance Guardian Services

Re Dominance Enterprises Pty. Ltd. T/A Dominance Guardian Services [2014] FWCA 4448 (Gregory C, 11 July 2014).

An application was made for approval of an enterprise agreement known as the Dominance Guardian Services – Enterprise Agreement – 2014. After reviewing the application, the Commission sought clarification of a range of issues. The agreement provided loaded hourly rates to employees depending upon whether an employee was rostered to work on weekdays, weekends or public holidays, and included an additional casual loading for casual employees.

Whilst the rates proposed for work rostered on weekdays appeared to satisfy the requirements of the BOOT, this was not necessarily evident for the rates provided for work rostered on weekends and on public holidays. The Commission also sought clarification of the intended span of ordinary hours, as well as the provisions concerning entitlement to overtime payments.

The Commission found that when pay rates were structured in the way proposed in the agreement, any assessment of those arrangements will depend in large part on when an employee is actually rostered to work. If the employee works the majority of his or her hours on weekdays then they will most likely be better off. However, if a significant proportion of the employee’s hours are on weekends or public holidays, this is less likely to be the case because the loaded rate at those times was less than the award rate.

The applicant provided information about how the hourly rates had been calculated, together with an additional undertaking to the effect that any shortfall between earnings under the agreement and earnings that would have been earned under the modern award would be made up in the next pay cycle. The agreement was approved with undertakings.

Re Lucky Coffee Pty Ltd

Re Lucky Coffee Pty Ltd [2013] FWCA 294 (Gay C, 15 January 2013).

An application was made for approval of an enterprise agreement known as the Lucky Coffee Pty Ltd Enterprise Agreement 2012. The Commission had a number of concerns with the agreement, including in relation to part-time hours and days being agreed upon in writing, overtime penalties for part-time employees and wage rates being high enough to compensate for reduced penalties.

The Commission received undertakings addressing these concerns by raising the pay rate for a number of junior rates and paying part-time employees overtime rates for any worked outside those agreed to.

The Commission was satisfied that employees were better off overall under the agreement than under the modern award.

Re Leslie James Foster T/A Echuca Security Options

Re Leslie James Foster T/A Echuca Security Options [2011] FWAA 6081 (Lewin C, 8 September 2011).

An application was made for approval of an enterprise agreement known as the Echuca Security Enterprise Agreement 2011. The Commission was concerned the agreement incorporated loadings and penalties into the pay rates.

The applicant undertook to both raise the pay rates and to pay weekend penalty rates for permanent employees required to work on the weekend. The Commission was satisfied that by incorporating the undertakings, the agreement could be approved.

Re Calvary Health Care Tasmania Limited

Re Calvary Health Care Tasmania Limited T/A Calvary Health Care Tasmania [2014] FWCA 7316 (Lee C, 16 October 2014).

An application was made for approval of an enterprise agreement known as the Calvary Health Care Tasmania Hospital Staff Enterprise Agreement 2014. It appeared the agreement incorporated shift loadings into the hourly rate.

The applicant increased the pay rates in the agreement to satisfy the Commission that employees would be better off overall under the agreement rather than the modern award. On this basis, the Commission approved the agreement.