Modern Awards - Transitional Provisions Statement From AIRC

On 2 September 2009, the Australian Industrial Relations Commission (AIRC) handed down it's much anticipated decision about transitional provisions to be included in modern awards in stages 1 and 2 of the award modernisation process. 

Whilst the majority of modern awards have been finalised by the AIRC, there has remained much uncertainty about how changes to terms and conditions of employment arising from the introduction of modern awards would be introduced into workplaces.  That uncertainty has now been resolved, although not without a high degree of complexity. 

The AIRC has decided:

• monetary obligations imposed on employers under modern awards can be absorbed into over-award payments
• an employee's take home pay should not be reduced as a consequence of the application of a modern award.  An employee who suffers a reduction may apply to Fair Work Australia for an order to remedy the reduction
• in most modern awards, a five year phasing-in period will apply to terms and conditions of employment relating to minimum wages, casual and part time loadings, Saturday, Sunday, public holiday, evening and other penalties and shift allowances (Transitional Pay Rates).  In most cases, this phasing-in will apply to increases and decreases in terms and conditions of employment and will occur in five installments of 20 per cent each commencing on 1 July 2010.

The effect of the decision is that in most cases, while the terms and conditions of employment contained in a modern award will apply from 1 January 2010, terms and conditions relating to Transitional Pay Rates will not operate until 1 July 2010.  At this time 20 per cent of the increase or decrease will apply and the remaining increases or decreases will follow over the next 4 years, on 1 July of each year.  

For example, let's say the rate of pay under the applicable transitional instrument for a full time employee is $18 per hour and the modern award sets the rate of pay at $20 per hour.  Until 1 July 2010, the employer can continue to pay the employee $18 per hour, however, on 1 July 2010 the employer would need to pay 20 per cent of the difference between the modern award rate and the transitional instrument rate, which would be $18.40 per hour.  The remaining increases will be implemented in equal instalments until 1 July 2014.  The employer will also be required to pay any increase in minimum wages in the modern award resulting from any annual wage review conducted by Fair Work Australia.  The first increase is also expected on 1 July 2010. 

Implications For Employers 

Employers should carefully review how the transitional provisions will apply to modern awards that will cover them and determine the appropriate transitional arrangements for their workplace.  While it is a complex task, it is important to ensure compliance with an employer's legal obligations.

For more information, please contact

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.