Under the new system more than 4,000 State and Federal Awards have been consolidated into approximately 130 Modern Awards. The Modern Awards apply to employers in particular industries, rather than to named groups of employers or employer groups as applied previously, and build on the National Employment Standards. The Modern Awards cover such additional matters as minimum wages, types and classification of employment and when work is performed, overtime and penalty rates, annualised salary arrangements and superannuation.

Most modern awards contain transitional provisions which allow wages and penalty rates which are higher or lower than pre-existing conditions to be progressively introduced in 5 annual instalments from 1 July 2010. However, some modern awards (non-phased modern awards) contain no transitional provisions at all. Where there are no transitional provisions, the full terms of the modern award apply from 1 January 2010.

All Modern Awards contain provisions allowing employers and individual employees to enter into agreements varying the operation of the Award for the individual employee in relation to:

  • the hours in which work is performed
  • overtime and penalty rates, and
  • allowances and leave loadings

These agreements are known as “Individual Flexibility Arrangements”. To be valid and enforceable, the agreement must be in writing, be made without coercion and result in the employee being “better off overall” compared to the award provisions. The agreement may be terminated by either party with four weeks notice in writing.

The Fair Work Act provides that a Modern Award will not apply to a “high income employee”, which means an employee whose guaranteed annual earnings exceed an indexed high income threshold, which is currently $108,300 per annum. Importantly, however, it is not enough that such an employee have a contractual entitlement to the relevant amount. For the Modern Award not to apply, the employer must give a formal, written guarantee and the employee must agree to accept that undertaking. This can also be agreed with prospective employees before they commence employment. Effectively, this is a means for contracting out of award for higher income employees.

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