The Fair Work Commission released two major decisions this week: its order regarding the timing for the implementation of reductions in penalty rates for Sunday and public holiday work in four major retail and hospitality awards, followed by its annual review of the general minimum wage. Both decisions will take effect on July 1. It is interesting to review the combined impact that the two decisions will have on the wages of workers in sectors affected by the penalty rates decision. In particular, does the Fair Work Commission’s decision to phase those cuts in over two or three years somehow protect the workers who will now receive lower wages for work on Sundays and holidays? Our previous research suggested this was not possible; we can re-examine that question in light of the Fair Work Commission’s two actual decisions.

As Australians debate the Fair Work Commission’ decision to reduce penalty rates for retail and hospitality workers, the Centre for Future Work has published new research on the prevalence of weekend work in other sectors of Australia’s economy – and the macroeconomic importance of extra income generated by weekend penalty pay.

The analysis is based on detailed new data on employment on Saturdays and Sundays in 108 different Australian industries.  It finds that weekend work is common in almost all sectors of the economy: with an average of 2.75 million Australian employees on the job on a typical weekend.  The extra income generated by penalty rates and related provisions for weekend work is estimated to add over $14 billion per year to the pay packets of weekend workers.

So while the retail and hospitality sector may be the most visible examples of weekend work, the practice extends far beyond those two sectors.  And if reductions in penalty rates are eventually applied in other sectors of the economy, as seems likely, the economic impact on Australian workers will be severe.

Legal experts have suggested that the same arguments invoked to justify the reduction in penalty rates for retail and hospitality workers will be used to support similar demands in other sectors, and employers in other sectors have already begun to argue that their penalty rates should be cut, too.

Penalty rates for Sunday work were estimated to supplement employees’ incomes by $8.5 billion per year, while penalties for working on Saturdays added another $5.5 billion.  This estimate includes the direct penalty rates paid to workers covered under the Modern Award system, but also the income supplements indirectly received by workers under enterprise agreements and individual contracts (whose terms must match or exceed the minimums specified in the relevant awards).

In the context of Australia’s record-slow pace of wages growth, income generated by penalty rates takes on added macroeconomic importance – in addition to its traditional function as compensation for the inconvenience and hardship of working on weekends.  Indeed, at current rates of wage growth, it would take five years of regular wage increases for aggregate labour income in the economy to regain the loss if weekend penalties were abolished altogether.

Government and business leaders have proposed a range of possible “transition” mechanisms to ease the economic hardship, and defuse political anger, following the Fair Work Commission’s decision to cut penalty rates for work on Sundays and public holidays in the retail and hospitality industries.  This briefing note critically reviews several of these proposals. 

Whether they are motivated by sincere concern for affected workers, or by more cynical interest in managing a challenging political issue, proposals for “transition” and “adjustment” cannot alter the ultimate regressive effects of the Fair Work Commission’s decision.