Smoke & Mirrors – SA Retailers get landmark penalty deals

If you have been paying close attention to the news lately, you would have heard of the deal that has been struck between the Shop, Distributive and Allied Employees’ Association (SDA) and Business SA.

In a *statement released on 24 March 2015 by the SDA, Secretary Peter Malinauskas said he approached Business SA in July 2014 to contemplate negotiating a voluntary Enterprise Agreement template aimed at reducing penalty rates. Media outlets yesterday announced Business SA had struck a deal which it claims ‘significantly reduces the penalty rates for retailers in SA, on weekends and public holidays.’

Sound like a great deal, right? However, before you start the celebrations, here is an analysis on what this means for employers in SA, should they move towards using the voluntary enterprise agreement template:

Base rate of pay

Based on our understanding, the deal will result in employees receiving a guaranteed 3% annual pay rise in addition to a rise in their base rate of pay, which has been said to be about 8%, taking the current base wage – Level 1 retail employee as per the General Retail Industry Award 2010 (Award), from $703.90 to $760.21 per week.

Our Analysis: Enterprise Agreements have under the Fair Work Act, a maximum nominal expiry of 4 years from the date of the approved agreement. If we took the maximum period of 4 years into account, in the first year (from now to 1 July 2015), an employer would pay $760.21 (this is based purely on the increase in base wage of 8%) then in the second year increase that figure by 3% taking the base wage to $783.02, third year increase that figure again by 3% which will now take the base wage to $806.51.

This means an employer using the Business SA/SDA Enterprise Agreement template will be paying approximately $3,000 per year more than the Award minimum, per employee!

You get the picture.

Ok, so in all fairness, surely the reduction in penalty rate makes up for this. Does it? Read on.

Penalty rates

As we understand, the deal struck by Business SA and the SDA allows for the following, if retailers use the voluntary enterprise agreement template:

• Sunday penalty rate to be reduced from 100% to 50%
• Public Holiday penalty rate to be reduced from 150% to 100%
• Saturday penalty rates – abolished
• Weekday evenings penalty rates – abolished

Our Analysis: So now, although you will be paying your employees a higher base rate, there is in fact no guarantee that they would work on weekends, as the deal struck between Business SA and SDA allows for employees to refuse weekend work and permanent employees get every second weekend off. We’re not sure that sounds like a good deal for an Employer. However, let’s put that aside and assume an ideal situation where employees work the weekend at the reduced penalty rate. What is the overall economic benefit to the business? Let’s look at two fictional cases:

Case 1 – Susan (employee) works as a part time retail employee and the workplace has used the template agreement as provided by Business SA & the SDA. Susan works 25 hours per week which is inclusive of 5 hours on Saturdays weekly.

Using the voluntary Enterprise Agreement, Susan would be paid 20 hours x $20.01 (minimum payable under the Enterprise Agreement) + 5 hours x $20.01 (Saturday loading is nil as per Enterprise Agreement). This brings the total weekly wage payable to Susan to $500.25.

Under the current Retail Award (Level 1), Susan would be paid 20 hours x $18.52 (minimum Award wage) + 5 hours x $23.15 (rate inclusive of Saturday loading prescribed in Award). This brings the total weekly wage payable to Susan to $486.15.

Case 2 – Trevor (employee) works part time in retail and his employer has put in place the template enterprise agreement as provided by Business SA & SDA. Trevor works 30 hours per week which includes 6 hours Saturday every fortnight.

Using the voluntary Enterprise Agreement, Trevor would be paid 48 hours x $20.01 (minimum payable under the Enterprise Agreement) +6 hours x $20.01 (Saturday loading is nil as per Enterprise Agreement). This brings the total fortnightly wage payable to Trevor to $1080.54.

Under the current Retail Award (Level 1), Trevor would be paid 48 hours x $18.52 (minimum Award wage assuming he does not evenings) + 6 hours x $23.15 (rate inclusive of Saturday loading prescribed in Award). This brings the total fortnightly wage payable to Trevor to $1027.86.

Now you do the Maths, as an employer which one would you go for? You must also take into account you are then obliged under the voluntary enterprise agreement template as promoted by Business SA to increase that figure by 3% every year.

These 2 examples demonstrate that the Employer would pay less under the Award. 

Enterprise Agreement

What is an Enterprise Agreement and how is it put into force?

To put it in simple terms, and Enterprise Agreement is an agreement made between employer and employees in a workplace at an enterprise level. The terms and conditions of employment are bargained between the employer and employees and once bargaining is complete, the parties then apply to Fair Work Australia for approval of their Enterprise Agreement. Once approved by Fair Work Australia, the Enterprise Agreement then comes into force 7 days after the date of approval.

When an Enterprise Agreement comes into force, the applicable Modern Award would generally no longer apply (with the exception of minimum wages).

For an Enterprise Agreement to be approved by Fair Work Australia, it must pass the Better Off Overall Test (BOOT); the terms in the Enterprise Agreement must be better than the applicable Modern Award.

Some businesses may benefit from such an arrangement, but in our experience the numbers are limited. The majority of retail store owner’s, especially smaller retailers, may in fact be worse off.

Enterprise Agreements are temporary arrangements which need to be negotiated regularly to keep up to date with changing legislation and Award requirements.

The Verdict

The SDA and Business SA are hopeful the voluntary Enterprise Agreement template will be adopted by businesses. This template is yet to be tested in the Fair Work Commission, however, it is important to note larger retailers have similar agreements in place.

We also doubt that all employees will freely enter into such an Enterprise Agreement as some employees particularly casual or part time employees may actually be worse off (potentially resulting in the voluntary Enterprise Agreement failing the Fair Work BOOT test). Think of the casual retail employee that only works weekends; how does the agreement benefit them if their weekend penalty rates are reduced and all they ever work is weekends?

So, before you jump into an Enterprise Agreement, consider carefully the overall impact to your business, and make certain you conduct your due diligence or you may well get less than you bargained for!

For further information please contact Workplace Partners by calling us on              1300 116 400 or email [email protected]

*The statement released by the Shop, Distributive and Allied Employees’ Association on 24/03/15 was available on their website on 24/03/15 titled ‘Message from SDA Secretary Peter Malinauskas on new voluntary Template Agreement for small business retail workers in SA’ however since then and the publishing of this article, the statement has been removed from the SDA website and we are unable to provide you with a link, however Here is a link to a screenshot taken.