The Apples and Oranges of "Same Pay" for Labour Hire and Contractor Employees
Labour hire and contractor employers may be covered by regulated labour hire arrangement orders (RLHOs) from 1 November 2024. RLHOs will require labour hire and contractor employers to pay the full rate of pay which applies under a host's enterprise agreement to employees performing work that is substantially of the same kind.
Unfortunately, this will require more than simply paying a higher hourly rate of pay. Section 18 of the amended Fair Work Act 2009 (Cth) defines the full rate of pay to include:
incentive - based payments and bonuses;
loadings;
monetary allowances;
overtime or penalty rates;
any other separately identifiable amounts.
Paragraph 685 of the explanatory memorandum for the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 provides the example of a regulated employee who would be entitled to a full rate of pay of $1,000 for a given period if they were employed directly by a host. The explanatory memorandum states that in this example, “the only obligation of the employer is to pay that employee at least $1,000”.
Opal Paper Australia Dispute
The meaning of “same pay” was considered in a dispute the AMWU brought against employer Papery Australia Pty Ltd trading as Opal (Opal).
Clause 40.8 of the Opal Australian Paper Enterprise Agreement 2020 - 2023 Maryvale Mill Mechanical Maintenance and Engineering Store (Opal EA) required Opal to pay labour hire employees wages and conditions that are "no less favourable than that provided for in this Agreement for equivalent or similar work". This provision results in practically the same outcome as that of a protected rate of pay (ie, full rate of pay) under a regulated labour hire order.
The AMWU alleged that a labour hire worker covered by the Opal EA was paid $54.99 per hour, which was $4.99 less than the rate of $59.98 per hour under the Opal EA. Opal disputed the AMWU’s inclusion of overtime. Opal contended that payment of the base rate of $51.15 per hour was compliant with its obligations under clause 40.8 of the Opal EA.
Meaning of “No LESS FAVOURABLE” IN OPAL DISPUTE
The Fair Work Commission disagreed with both parties, determining that an outcome that is “no less favourable” involves a complex analysis of how many different provisions in an enterprise agreement operate. The Fair Work Commission determined the rate of $55.24 per hour taking into account the effects of overtime rates, ordinary hours of work, allowances, and bonuses.
Despite the 25% discrepancy, the Fair Work Commission allowed for an offset based on other benefits available to the labour hire employee including:
a travel allowance of between $40 and $120 per week;
occasional safety bonuses; and
a higher casual overtime rate.
This meant that the labour hire employee was “no worse off” in this particular case. However, the decision highlights the complexity involved with determining the “same pay”, especially where a host employer’s enterprise agreement is complex or has terms which are incompatible with those of the labour hire or contractor employer.
Examples
The definition of full rate of pay captures things such as loadings, allowances, penalty rates and bonuses. However, there is more involved than simply comparing rates between the host’s agreement and the conditions payable to the employee of the labour hire or contractor company.
Shift Loading
Consider a host’s enterprise agreement which provides for a base rate of $42 per hour and an “afternoon shift” loading of 30%. It defines an “afternoon shift” as a shift rostered to start no earlier than 12:00pm and finishing after 6:00pm.
The labour hire company’s enterprise agreement provides for a base rate of $40 an hour and an “afternoon shift” loading of 15%. However, the labour hire company’s enterprise agreement defines “afternoon shift” as a shift rostered to finish after 6:00pm but not later than midnight.
Now consider the example of an employee rostered to work 10:30am - 6:30pm with a 30-minute meal break. We will assume that day work that is not an afternoon shift attracts an overtime rate of 150% after 6:00pm.
The employee will receive $325.50 under the host’s enterprise agreement, because these rostered hours are not defined as an afternoon shift.
The employee will receive $345 under the labour hire employer’s enterprise agreement. This includes 15% loading on all hours worked because the rostered hours meet the definition of an afternoon shift in the labour hire employer’s enterprise agreement.
In this example, the labour hire employee is paid more under the labour hire company’s enterprise agreement, which contains lower base rates and shift loadings.
Overtime
Consider a host’s enterprise agreement which provides for a flat overtime rate of 175%, alongside tiered overtime rates of 150% for the first two hours and 200% thereafter in a labour hire enterprise agreement where overtime is calculated across the week. Assume a base rate of pay of $50 under both agreements.
An employee who works a total of five hours of overtime by working one hour of overtime on each of five working days in a particular week. This employee will be entitled to $437.50 in overtime under the host’s agreement and $450 under the labour hire employer’s agreement.
Interestingly, if the labour hire employer’s agreement were to provide for each day standing alone when calculating overtime rather than calculation across the week, the outcome would differ. Calculating overtime on a daily basis would mean that the employee would only receive $375 in overtime under the labour hire employer’s agreement. In this case the employee would need to be paid $437.50 in overtime for the particular week under a RLHO, unless other offsets can be applied to reduce or remove this obligation.
PRACTICAL THINKING
Labour hire and contractor employers will need to implement the most efficient mechanisms to ensure they are paying at least the same as a host employer, where required. We consider a few practical options for labour hire and contractor employers.
Request host employer to provide model payroll data showing how much an employee would have been paid under the host’s enterprise agreement.
Create additional payroll pay rules or triggers (eg, an alternative overtime rate in any week where the total overtime exceeds a specific number of hours).
Consider the terms and conditions in one or more host organisation’s enterprise agreements and test for incompatibilities when bargaining for a new enterprise agreement.
The complexities with the Same Job, Same Pay legislation place an even greater spotlight on wage compliance and understanding the legal interpretation of modern awards and enterprise agreements when calculating pay and entitlements.
Contact us today on (02) 9139 8800 to discuss your questions and requirements. We can assist with detailed analysis, interpretation and practical recommendations best suited to your business.
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