If I pay my employees above-award rates, do I still have to pay penalties

If I pay my employees above-award rates, do I still have to pay penalties, allowances, loadings and overtime rates due to them under a modern award?

Many employers pay above-award rates either to attract good quality employees or because the demand for labour outstrips supply.

In addition to paying above-award rates, employers are then obligated to pay all of the other award monetary entitlements, the cost of which is inflated because the amounts are calculated using the higher wage rate. This need not be the case as it is possible for an employer to absorb payment for award monetary entitlements such as penalty rates, annual leave loading, shift loadings, overtime rates and allowances by offsetting all or some of these amounts against the above-award component of the employee’s pay rate.

It is important that any such arrangement be properly documented and agreed to by the employer and the employee; otherwise the arrangement can be deemed invalid. Absorption arrangements are commonly dealt with by way of a written employment contract or an individual flexibility agreement pursuant to a modern award.

Whichever method you choose, it is critical that each specific monetary entitlement being absorbed is clearly expressed in the document so that everyone is clear about what monetary entitlements are included in the above-award pay rate. Needless to say the above-award rate must be sufficient to cover the value of the entitlement that is being absorbed.

If you would like more information about offsetting above-award payments, please don’t hesitate to contact our Employment Law Team.