Publications / Employment

9 Oct 15
Penalty rates: a 'hallmark of the old economy'?

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  • All employers, particularly those in the hospitality, retail and leisure industries.


  • Recent reviews of penalty rates have recommended reforms in the broader hospitality industry, which (if implemented) would allow more flexibility for business and employees.


  • Final submissions for the hospitality component of the Fair Work Commission review into penalty rates will be open until 14 October 2015.  Other modern awards may also be reviewed in the future.

This week Prime Minister Malcolm Turnbull weighed into the debate around penalty rates and productivity, agreeing that a transition to ‘a more flexible workplace’ was likely as the nation moves toward a seven-day economy.  The Prime Minister’s comments will only heighten speculation about the future of penalty rates in the wake of the publicity surrounding reviews into their operation by the Productivity Commission and the Fair Work Commission. 

But with conflicting pressures from business and unions, the future of penalty rates is by no means certain.

What are penalty rates anyway?
Penalty rates are effectively a premium on top of the minimum rate of pay for employees working so-called ‘unsocial hours’.  They have formed part of employee entitlements for certain groups of employees in Australia for more than a century, reflecting a belief that increased rates are necessary to appropriately compensate workers for working hours that cause disturbance to family and social life, such as late nights and weekends.

More recently, with community expectations of increased trading hours, changes to the economic cycle, consumer lifestyle factors and increasing requests for flexible work schedules, penalty rates have come under attack.  While employee groups and trade unions make the case that vulnerable sectors of the workforce rely upon penalty rates for their survival, business and political leaders have branded them an impediment to small business and a handbrake on the economy.

Productivity Commission Review
In August the Productivity Commission (PC) released its draft report on Australia’s Workplace Relations Framework, inviting further comment from the public on a range of matters contained in the report.  The Terms of Reference included consideration of ‘fair and equitable pay and conditions for employees’, giving the PC broad scope to consider penalty rates.  This issue attracted an enormous volume of submissions, both for and against penalty rates. 

Ultimately, the PC draft report concluded that penalty rates for overtime, night and shift work should remain unchanged, but acknowledged the controversy surrounding weekend penalty rates, particularly in the sectors most impacted, including hospitality, entertainment, retail, and the restaurant and café industries.  Recognising the need for these businesses to offer weekend services and the benefits of flexible weekend work for many employees, the PC controversially recommended Sunday rates be reduced in line with Saturday rates in each of those industries.

This would give employers capacity to implement higher staffing ratios, longer hours of operation and more flexibility to utilise more experienced staff on Sundays.  Following the release of the draft recommendations, employee groups launched an attack on the draft findings and the then-Abbott Government went into damage-control, stating that the review of penalty rates was a matter for the Fair Work Commission, not Government.  However with comments made this week by the Prime Minister and other Ministers in the Turnbull Government, we may be seeing a reversal of that position. 

Fair Work Commission Review
In the wake of the PC review and the furore caused by its recommendations, the Fair Work Commission (FWC) is currently undertaking a review of the modern awards.  As part of that review, it has invited submissions from stakeholders with the intention to review penalty rates in the hospitality industry.  Specifically, that review currently includes each of the following modern awards:

  • Hospitality Industry (General) Award 2010
  • Registered and Licensed Clubs Award 2010, and
  • Restaurant Industry Award 2010.

Both industry groups and unions have made extensive submissions to the review, with final submissions being due by 14 October 2015.  Final hearings will be held from 14 to 18 December 2015. 

Changes proposed by industry groups are significant, and their implementation would have broad ramifications for businesses in the hospitality industry. 

Watch this space
While it is possible the FWC review could result in reductions to penalty rates in several areas, particularly in the hospitality, entertainment, retail, restaurant and café industries, the PC review could also encourage Government to move in this area. 

If such a change occurs, it will give businesses in those industries an opportunity to review rostering and work practices. 


Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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