Loaded Rates in Enterprise Agreements: Balancing efficiency against costs

The Fair Work Commission has recently handed down a significant decision to approve two enterprise agreements for ALDI stores which included ‘loaded rates’, after being the only agreements of five not to be dismissed in last year’s notable ‘Loaded Rates Agreement Case’.[1]

Loaded rates in enterprise agreements are one of the more misunderstood features of the Australian industrial relations landscape, however in this article we will attempt to bring some clarity to how employers should handle loaded rates in existing and proposed enterprise agreements.

 

What are loaded rates?

Loaded rates are a term used to refer to loaded rates of pay that specifically incorporate and compensate for benefits provided for under a Modern Award. An employer can bring the use of loaded rates into their business by incorporating them into an enterprise agreement with their employees.

These ‘loaded’ rates of pay are usually higher than the minimum rates provided for in the Award to compensate for whatever entitlement they are designed to incorporate. For example, entitlements and benefits that could instead be incorporated into a loaded rate include:

• annual leave loading;
• work related allowances; and
• weekend penalties.

Notably, annual and personal/carer’s leave cannot be incorporated into a loaded rate of pay.

 

Determining the correct loaded rate to pass the BOOT

In order for an enterprise agreement to be approved, it must pass the better off overall test (BOOT) outlined in the Fair Work Act 2009 (Cth) that requires that each current and prospective award covered employee would be better off overall if the proposed agreement applied to them rather than the relevant Modern Award.

However, determining whether a loaded rate passes this test can be a complicated matter, particularly as the financial benefit that a person receives over a year from penalties will be variable depending on how they are rostered.

For example, an employee regularly working weekends will be entitled to a greater financial benefit than another employee who only works weekdays, due to the applicability of weekend penalties.

The Fair Work Commission made clear in their Loaded Rates decision last year, that in considering the BOOT, every employee must be better off under the agreement, otherwise the agreement must not pass.[2] Accordingly, if an employer proposed a single loaded rate for both employees in this example, the loaded rate would have to be adequate to cover the employee working primarily weekend to pass the BOOT, and therefore higher than that required for the employee working weekdays only.

Essentially, demonstrating to the Commission that a loaded rate will pass the BOOT will require a detailed assessment and comparison of whether an employee on a loaded rate would be better off than under a modern award on the basis of a range of possible and likely rostering patterns in the agreement.

Accordingly, where there is wide range of potential rostering scenarios, it will require careful analysis to ensure that all possible employees’ and permutations of their rosters are better off overall.

Notably, the Full Bench found that where employees did not work pursuant to a reliable and prescribed roster pattern, as is often the case with casual employees, it would be difficult for a loaded rate to pass the BOOT unless there was some sort of guarantee of a prescribed roster for casuals. But this would eliminate one of the principle reasons a business employs casuals: flexibility.

 

Existing Loaded Rates in Agreements

Despite the difficulties highlighted in last year’s loaded rates decision, there are enterprise and collective agreements currently in place which include loaded rates, even for casual employees; an issue which the Commission had singled out as posing substantial difficulties for the prospects of agreements under consideration for approval.

Despite this decision, existing enterprise and collective agreements with loaded rates will still apply.

Section 206 of the Fair Work Act 2009 (Cth) provides that if the base rate of pay provided for in an agreement is less than the base rate of pay payable under the applicable Modern Award, then the agreement will continue to operate as if the base rate of pay in the agreement were equal to the base rate in the award.

Accordingly, loaded rates in an approved and current agreement may continue to apply, but the base rate of pay used to determine other rates of pay may need to be increased to the base rate provided for in the relevant modern award.

If your company is using an agreement with loaded rates and you’re unsure of the appropriate rates of pay pursuant to your agreement, contact NRA Legal  on 1800 572 679 for further assistance.

 

The Aldi Agreements

Despite the difficulties that can be arise in seeking approval of an agreement containing loaded rates, it is possible to get such an agreement approved, as has recently been demonstrated by the recent decision of the Fair Work Commission to finally approve the ALDI Prestons Agreement 2017 and the ALDI Stapylton Agreement 2017.[3]

This decision is a final determination following initial consideration of the agreements by the Commission in the Loaded rates case last year, after a number of issues were outlined by the Full Bench to be resolved before these agreements could again be considered for approval.

One controversial feature of these agreements was the presence of ‘bankable hours’, where an employee would always be paid their contracted hours, but that where they worked more hours than contracted, they would be able to bank these hours towards pay periods where they would work less than their banked hours.

In the intervening period, ALDI and the other parties to the agreement engaged in further discussions, and ALDI made a number of undertakings in response to the remaining issues in pursuit of having the agreements finally approved. These undertakings covered a variety of issues, with one such undertaking being a commitment not to employ casual employees for the life of the agreement.

In fact, so many additional undertakings were made that one of the parties, the SDA, submitted that the amount of undertakings may render the agreement incapable of being approved as it was substantially different to what employees had originally voted for.

Despite this, the Commission found that accepting the undertakings would not result in a financial detriment to employees and so accepted the undertakings and approved the agreement.

 

Key learnings

These cases demonstrate that where an employer seeks to implement an agreement that introduces creative and innovative strategies to introduce flexibility into their business and implement more efficient systems of pay, they may face an uphill battle in getting such an agreement approved. However, it is possible.

If you are considering implementing an enterprise agreement, or having an existing agreement you need help to navigate, contact NRA Legal on 1800 572 679 for further assistance.

[1] Loaded Rates Agreements [2018] FWCFB 3610 (Hatcher VP, Catanzariti VP, Gostencnik DP, Lee C, Harper-Greenwell C, 28 June 2018).

[2] Ibid, [116].

[3] ALDI Foods Pty Limited as General Partner of ALDI Stores (A Limited Partnership) T/A Aldi Stores AG2017/1925 & AG2017/1943.

 

By Thomas Parer and Lindsay Carroll, NRA Legal