On Thursday 28 August 2025 the Governments’ legislation to ‘enshrine penalty and public holiday rates’, the Fair Work Amendment(Protecting Penalty and Overtime Rates) Bill 2025, passed.  The new legislation creates a new section (section 135A) into the Fair Work Act and “establishes a clear and imploranat principle” that the Fair Work Commission will exercise when making or varying modern awards.

In her second reading speech Workplace Relations Minister Amanda Rishworth said that the changes would require that the Fair Work Commission “must ensure the specified penalty rate or overtime rate in modern awards that employees are entitled to receive are not reduced, and modern awards do not included terms that substitute employees’ entitlements to receive penalty rates or overtime rates, where those terms would have had the effect of reducing that additional remuneration employees would have otherwise received”.

This change will outlaw moves by business groups to have some Awards changed to include an offset clause that would allow for penalty and public holiday rates to be ignored if the base rate paid to the employee is 35% above the Award base rate.

This new law has caused concern in the fuel industry, particularly in fuel transport, that this could mean an end to ‘Racked Rates’ that have been utilised extensively.  The impact on businesses and employees utilising the facilitative provisions to create ‘Racked Rates’ through Individual Flexibility Agreements (IFAs) and Enterprise Bargaining Agreements (EBAs) need to be understood by all employers.

The Basics

The modern awards provide for the minimum rates of pay for employees undertaking specific job roles or tasks in particular industries.  The modern awards set out what employees should receive for ordinary hours of work as well as penalty rates that should apply for things like weekend work, evening and night work as well as work on a public holiday.  While not universally higher in all of these cases, in most cases work done in the evening, late at night, on a weekend or on a public holiday tends to attract a higher rate of pay.

The Applications

Business groups recently applied to the Fair Work Commission, the regulator who sets and modifies the modern awards, to modify several Awards (in hospitality, clerical and retail) to include a clause that would allow employers to ‘ignore’ the myriad penalty rates applying to these types of work and instead provide the employee with a 35% or more loading on the base rate of pay.

In the application the argument was that this higher base rate of pay provides for the employees to be better off overall than they would be if all of the penalty rates were calculated and displayed separately and allows for efficiencies in payroll processing, planning and management.

In opposition to the application unions point out that while the 35%+ loading would provide for most employees to be better off overall in most cases, without modelling of that actual employees working hours there is potential for such generalisations to lead to the employee being underpaid, a situation that they argue would compound over time as the offset provision is used more widely and employees are pushed to work more hours under the auspices of ‘the offset clause’.

For example if the offset clause was utilised for an employee in hospitality that only worked on weekends that employee would be receiving the base rate plus 35% but that would be less than the 50%-100% weekend penalty loadings that the Award says they are entitled to.

The New Law

The legislation aims to prevent the insertion of any such blanket ‘penalty offset’ clauses into the modern Awards, and empower the Fair Work Commission to remove such claused that already exist in some awards.

Workplace Relations Minister Amanda Rishworth told Parliament in presenting the Bill that “this legislation will mean that proposals like these cannot be included in modern awards, which acts as our safety net and ensures penalty and overtime rates of low paid workers are protected”.

Practical Considerations

“The concern we are hearing from Members is how this will impact their current EBAs or IFAs, that provide racked or rolled up rates to employees for working a known roster”, outlines ACAPMAs Elisha Radwanowski

Those Members using structured existing facilitative provisions systems to set agreed, tested and fully modelled rolled up rates under the individual flexibility arrangements, will still be able to do so.

ACAPMA Members with EBAs ot IFAs in place will see no change from these legislative changes.

“EBAs or IFAs often utilised full or partial racked or rolled up rates, and they will continue to be able to do so into the future even if this law is enacted.

This has led to the question from Members:  What is the difference between an ‘offset’ clause and an EBA/IFA Racked Rate, if both result in a single rate of pay for all hours?

“The first key difference between the ‘offset clause’ that the new law seeks to outlaw, and the standard racked rates used in EBAs and IFAs, is the modelling”, explains Elisha.

In order to get an EBA approved or an IFA compliantly used, the business needs to have a clear picture of the work that the employee will be doing and when, model that out in full, showing all of the penalty rates that should apply, and then use the outcome to set the rolled up rate.  This means that someone who is known to be working only on weekends would have the applicable weekend penalty rates included in the modelling of their racked rate, as opposed to a base rate plus x%, where the x could be less than the award requirement, which is what the ‘offset clause’ is contemplating.

“The second key difference is that the EBA and IFA processes typically call for either a completely stable roster, or, an included ‘actual hours worked’ review periodically.  A completely stable roster allows for perfect knowledge of what the employee ‘should’ have received if they were working on a standard unmodified Award basis, and thus it is easy for the modelling to demonstrate the employee is better off overall.  Where there is a variation to the roster over time most EBA and IFA processes call for the actual hours to be reviewed at least annually, and an adjustment payment made if required”, continues Elisha.

Bottom Line

“The bottom line is that Members that are using EBA and IFA processes correctly will not be impacted by this new law.  It is however a reminder to all businesses that utilise a ‘salary’ approach that there are particular requriements for paying an annualised rate that must be met for the process to be compliant”, adds Elisha.

ACAPMA Guidance

ACAPMA produces and circulates IFA Guidance for both Retail and Transport elements of the fuel industry.  This guidance includes General Information, Template IFAs and Award Specific Calculator Tools to facilitate compliance in this area.

The ACAPMA Fuel RETAIL and Fuel TRANSPORT IFA Packs are available now;

ACAPMA Members can email employment@acapma.com.au for a copy of the Guide Packs or for assistance on EBA processes.

More Information

Here to help

ACAPMA members are reminded that they can access the advice support resources and representation of the ACAPMA Employment Professionals on this issue, or indeed any other employment issue, via employment@acapma.com.au.

HR Highlights are things to consider, implement and watch out for in your business. They are provided as general advice and you should seek further advice on your situation by contacting the ACAPMA Employment Professionals via employment@acapma.co.au  its free for members. Click here to apply for ACAPMA Membership.

Elisha Radwanowski BCom(HRM&IR)
ACAPMA

 

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