Penalty rates: how important is a free Sunday?

By Stephen Booth

Penalty rates have been a longstanding issue in industrial relations. 

The modern awards system and the pre-2006 federal, state and territory award systems set out loadings for working ‘unsociable hours‘: early and late, on weekends or public holidays. Employees and unions support penalties as an entitlement and legitimate compensation for working outside traditional hours. On the flip side, employers and employer associations argue that penalties affect productivity and reduce employment opportunities.

Previous attempts by the National Retailers Association and other employer groups to persuade the Fair Work Commission (FWC) to reduce penalties have failed because of insufficient evidence. The Abbott government disavowed any intention to deal with penalties, saying it was a matter for the FWC. Having insufficient political capital to take on such a thorny issue, with its echoes of WorkChoices, played a significant part in this position. Now, the penalty rate system as a whole is under review by the FWC as part of its four-yearly review of modern awards, so there may be changes on the way affecting a wide range of awards.

Lately, aside from the four-yearly review, the focus has been on Sunday penalties, with a recent FWC decision allowing some changes in the restaurant industry, and the Productivity Commission recommending that Sunday penalties (commonly double time or 200 per cent of base rate) be reduced to Saturday levels (commonly time and a half or 150 per cent of base rate).

Restaurant industry case

Employers in the hospitality, retail, restaurant and café industries have long argued that weekend penalty rates inhibit businesses operating on weekends (on Sundays especially) and therefore limit opportunities for customers and for additional employment.

Sunday penalty rates were intended to compensate employees for the particular disadvantage of having to work on a day of religious, sporting and family commitments. Penalty rates were developed in an age when standard employment involved a single male breadwinner working five days a week, so that working Sunday as well would involve significant disadvantage.

In this case, the employers contrasted this with a 21st century situation in which:

  • Religious observance and active participation in sport, or attendance at sporting events was much reduced (research shows much more viewing of sport by audio-visual means).
  • Employees typically engaged in weekend work in restaurants and cafés were not career employees in the industry.
  • These employees often preferred to work on weekends as they were involved in caring responsibilities or education during the week.
  • The penalties applied to many employees who had not already had five days’ employment, so that they potentially had opportunities for family and social time on other days of the week.
  • Sunday was now not much different to Saturday, so there was no justification for higher Sunday penalties.

On the other hand, the union argued that many of the employees affected were among the lowest paid and relied on penalty rates as a significant component of their income.

The full bench split 3-2, with the majority deciding that while Sunday was still a day for much family and social activity, a case had been made for a reduction in some penalties to encourage increased employment opportunities, but that the impact should be restricted to the two lowest levels of classification (therefore excluding career employees), and should take effect by reducing a 50 per cent Sunday loading to 25 per cent.

As the employers had a difficult process to obtain this limited reduction, this case didn’t suggest that a broad-based reduction to penalty rates was likely, but employer groups foreshadowed further cases in the pharmacy and retail industries.

Productivity Commission Report 

In August, the Productivity Commission (PC) issued its draft report on the ‘Workplace Relations Framework’, recommending a reduction in Sunday penalty rates for the hospitality, entertainment, retail and restaurant industries. A final report is due in November.

In recommending that Sunday penalties in these industries should be reduced to Saturday levels, the PC took account of these matters:

  • Australians want more goods and services on weekends, with evidence suggesting that weekend demand is as much as, or even greater than, demand on weekdays, and Sunday is increasingly becoming the ‘new Saturday’.
  • The social costs of daytime work on Sundays are similar to Saturdays.
  • An increase in female workforce participation has led to domestic tasks that were previously performed during traditional working hours, including shopping, that are now being undertaken on weekends.
  • A shift in shopping times as shopping centres become a place of weekend social interaction.
  • A significant decline in religious observance.
  • The recognition of the legitimacy of businesses being open on weekends by both consumers and government.
  • Competition from online retailers, which stimulates weekend consumer activity, places greater pressure on physical retailers to remain open on weekends to be competitive.

Nevertheless, the PC decided that there is still a need for weekend penalty rates, with the Australian Work and Life Index finding that ”many people would not work weekends if there were no premium rates for doing so”.

Of course, consumers value the flexibility of increased opening hours for shops, services, and places to eat and drink – and many employees value the job opportunities. Penalty rates on weekends have always been part of that attraction, and if penalty rates are reduced more broadly by the FWC review, then it will be interesting to see how the job market works through this issue: employers may, of course, still have to pay the same money if potential employees still want the traditional level of pay. All concerned will anxiously await the PC report and the FWC decisions.

If you have any issues with penalty rates and other award conditions in your business or employment, contact Coleman Greig’s Employment Law team on 02 9895 9222.
Article written with assistance from Mario Rashid-Ring.