The modern awards system: how Australia's industrial floor is set
Modern awards set the minimum pay, hours, leave, allowances and conditions for most Australian employees. Here's how the system fits with the National Employment Standards and enterprise agreements.
What modern awards are
Modern awards are industry- or occupation-based minimum-conditions instruments made under Part 2-3 of the Fair Work Act 2009. These instruments provide a baseline of employment conditions.
Approximately 120 modern awards cover most private-sector employees in Australia. They establish the minimum standards employers must meet. Employers should ensure they are Payday Super readiness to comply with these obligations.
Modern awards set minimum pay rates, hours of work, penalty rates, overtime, allowances, leave entitlements (beyond the NES), and consultation, dispute-resolution and termination provisions for the covered industry or occupation.
Fit with the National Employment Standards (NES)
The 11 National Employment Standards, detailed in Part 2-2 of the Fair Work Act, establish minimum employment entitlements. These standards apply to almost all employees and cover areas such as hours of work, leave, public holidays, notice of termination, redundancy pay, and the Right to Disconnect (s 333M).
Modern awards operate in conjunction with the NES. They are designed to build upon these minimum entitlements, meaning they cannot reduce them. Awards can, however, provide additional benefits for employees within a specific industry, such as higher overtime rates or additional leave.
Even employees who are not covered by a modern award remain subject to the protections afforded by the National Employment Standards.
Enterprise agreements
Enterprise agreements are legally binding documents negotiated between employers and employees or their representatives. These agreements establish terms and conditions of employment that apply to a specific enterprise or group of enterprises. They operate as a separate industrial instrument, taking precedence over the relevant modern award for the employees and employer to which the agreement applies.
A key requirement for an enterprise agreement to be approved by the Fair Work Commission is that it must pass the ‘better off overall test’ (BOOT). This test ensures that the agreement provides a benefit to each employee compared to what they would be entitled to under the applicable modern award.
Upon approval by the Fair Work Commission, an enterprise agreement replaces the relevant modern award for the covered employees. This means the agreement’s terms govern their employment conditions, rather than the provisions outlined in the modern award.
Annual Wage Review
The Fair Work Commission’s Expert Panel undertakes an Annual Wage Review. This review assesses the impact of wage levels on Australia’s economy and productivity.
The outcome of the Annual Wage Review may result in adjustments to both the national minimum wage and the minimum rates specified within modern awards. These adjustments are based on the Panel’s assessment of relevant economic conditions and labour market factors.
Decisions made through the Annual Wage Review generally come into effect from the first full pay period that begins on or after 1 July each year.
Frequently asked
Can a modern award reduce NES entitlements?
No. The 11 National Employment Standards set the floor. Modern awards can supplement the NES (e.g. higher overtime rates, additional leave) but cannot reduce or remove NES entitlements.
When do Annual Wage Review decisions take effect?
Typically from the first full pay period commencing on or after 1 July each year. The Fair Work Commission's Expert Panel conducts the Review and can adjust the national minimum wage and minimum award rates.
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