How the Fair Work Commission’s penalty rate cuts will affect your business and employees


The Fair Work Commission recently ruled that Sunday and public holiday penalty rates will be reduced for full-time and part-time workers in the hospitality, retail, pharmacy and fast-food industries.

The Fair Work Commission heard evidence from 143 lay and expert witnesses during a prolonged period of deliberation.

In addition 5,900 submissions were received from State and Territory Governments, political entities, individual employers and employees.

The decision to cut penalty rates makes it transparent that the Fair Work Commission is very much about protecting employers, not the employees.

The employee representatives possibly assumed the rates would not be reduced and did not put forward a sufficiently strong economic case.

As the President of the Fair Work Commission is a former union official, the employee representatives may have mistakenly thought that he would inherently accept the need to uphold the penalty rates in a time of flat wage growth.

Leading up to the decision

Upon its founding over 100 years ago, the Commonwealth Court of Conciliation and Arbitration was very much about protecting the Australian standard of living.

The Fair Work Commission has clearly broken with the early legal precedents from the Harveter Case in 1907 where a ‘living wage’ for workers was considered sacrosanct.

When business is bigger and stronger than it’s ever been, it is curious that the Fair Work Commission favoured business over Australian workers and shows no sense of 60 to 80 years of history.

Many Sunday shift workers are people who cannot find full time work during the week, or are students who are unable to work through the week due to study commitments. They are workers who need a living wage.

The concept of living wage is as important today as it was over 100 years ago. It is short-sighted of businesses to reduce the income of the very people they need to buy their products.

Traditionally, the objective of modern awards and penalty rates are to compensate employees for working outside ‘normal hours’ and a deterrence to employers to scheduling work in these times. Weekends are not yet considered ‘normal hours’.

What is the impact for employees?

For employees in the affected industries, there has been long term controversy and heated debates surrounding the ongoing effects to the lives of people working in these sectors if penalty rates are cut.

The Full Bench of the Fair Work Commission was entrusted with deciding the outcome of penalty rates and concluded that the Saturday rate met the object of the award across the hospitality, retail, pharmacy and fast-food awards. However, Sunday rates did not meet the relative standards.

For casual employees working in retail and those working between 7am – 9pm in the pharmaceutical sector, Sunday rates will decrease from 200% to 175% of their regular wage, and full-time and part-time employees will go from 200% to 150%.

For full-time and part-time employees in hospitality, Sunday rates will decrease from 175% to 150% of their regular wage.

Employees in a level 1 position under the Fast Food Award will see their Sunday wage will decrease from 175% to 150% for casuals, and 150% to 125% for full-time and part-time employees.

What are employers set to gain from these changes?

The penalty rate reduction will mainly present changes to the retail, fast-food, and hospitality industries as the trading hours of operation have the potential to expand.

The main benefit for employers would be increased operating hours for smaller businesses who traditionally claim they could not afford to have extended hours, and lower public holiday surcharges for visiting patrons. However as the rate cut will continue to be seen as a transgression to the employees, the willingness to work the extra hours may be a hurdle for employers.

Hundreds of thousands of workers will be negatively impacted by the decision in the short term. Businesses might be hit hard as a result by the reduced spending power by those workers. There is a chance that this will reduce the capacity to employ the additional workers that it promised to employ in the medium term.


About the author

Alan McDonald is the Managing Director of  McDonald Murholme, an employment law firm based in Melbourne and Adelaide.