The definitive guide to employee classification levels

One of the most common questions we are asked on the workplace relations hotline is how to correctly classify employees. In most cases, this is a fairly straight forward exercise, and it’s an important skill for business owners to develop.

However, like many parts of modern awards, classification levels are not always drafted in the clearest of terms, and seldom do they anticipate every possible situation that may arise. For this reason, it’s essential to both understand what each classification level means and how to determine which one to apply.

What are employee classification levels?

If a modern award or enterprise agreement applies to a business, each and every employee covered by the award or agreement must be assigned a classification level.

From a classification level you can work out:

• an employee’s rate of pay;
• the duties they can be expected to perform; and
• what they need to do to advance classification levels.

The levels themselves are outlined in the award or agreement, and they often vary drastically in their placement (i.e. where they are found in the award or agreement) and what duties are contemplated at each level.

Some modern awards (like the Fast Food Industry Award 2010) have only three or so different levels, however others – like the Hospitality Industry (General) Award 2020 – have 41 different classifications. In both of these awards, the classification levels are outlined at the end of the award in one of the ‘Schedules’.

Does everyone need a classification level?

An employee must be given a classification level if they are covered by a modern award or enterprise agreement. Many awards also require employees to be notified in writing of their classification level.

However, not everyone will be covered by a modern award or enterprise agreement, and as such will not require a classification level. These types of employees are commonly referred to as being ‘award free’. An example of an award free employee may be the Managing Director of a corporation, however as we will soon look at, an employee’s job title will not always determine whether they need a classification level or what that level should be.

There are significant penalties if an employee covered by an award or agreement does not receive a classification level, even if they are paid well above the relevant classification level in the award. It is up to the employer to decide on the most appropriate classification level, however there are some rules that must be followed.

How do I decide an employee’s classification level?

To determine an employee’s classification level, the first step is to work out what modern award or enterprise agreement may apply to their employment. This, in and of itself, sometimes presents challenges and there are complex legal rules about how different awards interact. The Fair Work Ombudsman maintains a basic tool to help find what modern award may apply to certain businesses, however you should always seek independent legal advice if you are concerned about modern award coverage.

Once this has been determined, the next step is to work out if the employee falls within the coverage of the award or agreement.

For this example, let’s assume the General Retail Industry Award 2010 applies to a business who is about to hire a new part-time Assistant Store Manager. This new employee will usually supervise 6 employees while the Store Manager has their two rostered days off each week.

The classification levels in the Retail Award are all listed in Schedule B at the end of the award. Here, we can see that there are 8 different classification levels: Retail Employee Level 1 to Retail Employee Level 8. Each different level lists both the typical duties of employees at that level, and sometimes indicative job titles as well.

An employee’s classification level must be assessed by looking at the actual duties attaching to the employee’s position, and while a job title may assist in this regard, it will not be determinative. This is because the duties attaching to a job title can often vary widely from business to business. This is also why it’s important to have accurate and up-to-date position descriptions, as if there is ever a dispute about an employee’s classification level, this will be one of the first places to look.

Returning now to Schedule B of the Retail Award, the job title of ‘Assistant Shop Manager’ is contemplated as an indicative job title of a Retail Employee Level 4. However, an indicative task of this level only involves ‘supervision of up to 4 sales staff (including self)’. In our example, the Assistant Store Manager will need to supervise 6 employees and will also have to look after the running of the store while the Store Manager is away. As such, it is unlikely that this classification level will be appropriate based on this employee’s duties and responsibilities.

Retail Employee Level 5 is a unique classification level as it does not provide a comprehensive list of duties, only that it is higher than Retail Employee Level 4 and typical job titles include:

• A tradesperson in charge of other tradespersons within a section or department; and
• Service Supervisor (more than 15 employees).

While our Assistant Store Manager is certainly higher than a Retail Employee Level 4, there may still be a more appropriate classification level in Schedule B. Once an employee reaches Retail Employee Level 6, they may be expected to either manage of section (such as an outlet) of a department store with 5 or more employees, or be the manager of a store without departments.

In our example, this level contemplates the Assistant Store Manager being able to supervise all 6 employees, and also the running of the entire store in the absence of the Store Manager. As such, by looking at the employee’s actual duties the classification level of Retail Employee Level 6 (and not Retail Employee Level 4) will be the most appropriate for this employee.

Finally, clause 16 of the Retail Award provides that we must notify this new employee of their classification level in writing. The best way to do this is in an employee’s contract of employment, which also serves the purpose of dealing with the Retail Award’s requirements for part-time employees.

It can sometimes become complicated if an employee’s duties do not squarely fall with a classification level. This is because modern awards in particular have not been developed to contemplate every single possible scenario that may arise. Once all other options have been exhausted, there is sometimes a commercial decision that needs to be made to decide the most appropriate classification level.

Step-by-step

In summary, to work out an employee’s classification level there are four steps to follow:

1. Determine if a modern award or enterprise agreement applies to their employment;
2. Compare the employee’s duties and responsibilities with the different classification levels under the award or agreement;
3. Work out if an employee falls with the classifications in the award or agreement, and if not consider whether:
   another modern award or enterprise agreement may apply;
   the employee will be award free; or
   to make a commercial decision with respect to the appropriate classification level.
4. If required by the award or agreement, notify them in writing of their classification level.

If you’re unsure which modern award or enterprise agreement applies to your business, or require assistance classifying an employee, telephone 1800 572 679 to speak with one of our workplace relations advisors.

Find out more about classification at the Rostering for Compliance Masterclass on Wednesday, 2 December. Book here.

By Calum Woods and Lindsay Carroll