Junior Rates Of Pay Set For Major Change

In what is already being described as a landmark decision, a Full Bench of the Fair Work Commission has issued a provisional view that junior rates of pay should be phased out for employees aged 18 years and over.

While the provisional decision is currently limited to employees covered by the General Retail Industry Award, Fast Food Industry Award, and Pharmacy Industry Award, it is expected that the approach will ultimately be extended across other industries. 

The Full Bench’s decision is expected to deliver pay rises to around 500,000 award-covered young Australians. While the decision is being widely celebrated by union bodies who have long been advocating for this reform, the proposal will undoubtedly increase the labour costs for employers of hiring junior employees – some of whom may be trying to gain work experience in their first role out of school. This may ultimately make it harder for junior employees to secure employment. 

What has been proposed?

Under the current proposal, junior rates of pay for affected employees would increase by five percentage points every six months until the applicable adult rate of pay is reached.

Importantly, the proposal only applies to:

• employees who are 18 years of age or older; and
• employees who have been employed by the same employer for at least six months.

Employees who are under 18 years of age will continue to be paid the same junior rate of pay. Employees aged 18 or over who have not yet reached six months’ service with their employer will also receive the same junior rate of pay. 

The below summary table illustrates how the incremental increases would apply over time: 

Why this matters for employers? 

If the provisional view is ultimately adopted, employers in the affected industries will need to manage a far more complex mix of variables when setting and maintaining pay rates for junior employees.

In particular, employers will need to closely monitor:

• the age of junior employees; 
• whether an employee has reached six months’ service; and
• the incremental increase dates every six months until the full adult rate applies.

With multiple age thresholds and service milestones operating simultaneously, there is a clear risk of payroll errors if systems are not carefully configured and regularly reviewed.

Unintended effect of proposal? 

The six months’ service requirement for a junior employee to be eligible for the full adult rate of pay will have a few interesting effects. This includes: 

• If the junior employee moves to a new employer after reaching their six-month service milestone with their first employer their pay will likely decrease. This is because they will not be eligible for the full adult rate of pay until they reach the six-month milestone again with the new employer. This may mean that junior employees are less likely to change employers and try new roles for fear of losing income. 
• Employers will also be incentivised to not keep junior staff on beyond six months – which also aligns with statutory minimum period of service for an employee to be eligible to make an unfair dismissal claim. While there would be obvious general protections risks associated with dismissing an employee or reducing their hours of work because they are about to become entitled to a higher rate of pay under an industrial instrument, it is not unimaginable that some employers will take this approach – at considerable risk - to reduce their labour costs.

Enterprise Agreements and base rates of pay

The decision also has important implications for employers who employ junior employees covered by an enterprise agreement (EA).

Once the new rates take effect, the increased junior rates under the relevant modern award will set the base rate of pay for the purposes of section 206 of the Fair Work Act 2009 (Cth). This means employers will need to undertake regular checks (beyond the usual 1 July check where award rates generally increase each year) to ensure that any EA rates continue to sit above the relevant award rates.

If they do not, employers will be required to apply the award rate for all purposes under the EA – a position which can create both compliance risk and administrative complexity if not identified early. 

What should employers be doing now?

Although the decision is still provisional, employers in the retail, fast food and pharmacy sectors should be taking steps now to prepare, including:

• reviewing the age and service profile of junior employees (i.e. under 21);
• assessing whether current payroll systems can accommodate the proposed staged and time‑based increases; and
• considering the impact of rising award rates on any applicable enterprise agreement rates of pay.

For employers in other award covered sectors, this decision is one to watch closely. If the Full Bench’s approach is expanded more broadly, the implications will extend beyond the three industries currently in scope.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.