Industrial relations lawyer RICHARD CALVER is wary about the federal government’s legislation that purports to protect penalty rates. He’s not so sure that’s what it’s really about… 

Since introducing the Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 on July 24, the federal government has made an amendment. 

At first glance, it looks like the Bill is about protecting workers’ penalty and overtime rates, as expressed in its title. But a closer look shows it’s aimed more narrowly, that is to negate some current applications before the Fair Work Commission.

Here’s the issue: this Bill would force the Commission to reject certain applications, no matter how well-reasoned or evidence-based they are. 

If you’re applying or have an application currently before the Commission to vary an award in the way the Bill proscribes, the Commission has to say no.

The Bill would insert a new section into the Fair Work Act. It would require the Commission to make sure of two things when dealing with modern awards:

• Penalty or overtime rates are not reduced. 
• Modern awards do not include terms that substitute penalty or overtime rate entitlements with alternative entitlements that would reduce additional remuneration from penalty or overtime entitlements that any employee would otherwise receive.

In practice, the second requirement means if even one employee would be worse off under a proposed change to penalty or overtime rates, the application must be rejected by the Commission.

That essentially means any application to introduce a provision that affects penalty or overtime rates that might benefit 99 out of 100 people would fail because one person was adversely affected. It’s the death knell for industry wide flexibility.

What’s especially concerning is that this rule would apply to existing applications already lodged with the Commission.

This is highly relevant in the retail sector, where several applications are being considered. One of these relates to a proposal allowing employers to “roll up” penalty rates into higher salaries for employees who earn above a certain minimum. That’s now a dead duck if, or more likely, when the Bill passes.

Not all modern awards include penalty or overtime rates. These rates aren’t part of the fundamental, non-displaceable employment protections set out in the National Employment Standards, but they do appear in most modern awards.

Modern awards form the second tier of Australia’s employment safety net. The government’s amendment to the Bill now makes it clear that the Commission won’t have to re-examine all awards to make sure they meet the new rules.

That seems appropriate, but it also reinforces that this change is really about stopping the current applications for, amongst other things, rolled up rates in the retail, clerical, and banking sectors.

More difficult for enterprise agreements

The Bill does not impose any obligation to include penalty or overtime rates in modern awards or enterprise agreements. It will make it more difficult for enterprise agreements to be shown to produce a better off overall result for workers when compared with a modern award, the threshold test for making an enterprise agreement. 

The bigger problem is this: interpreting and applying modern awards is already complicated. Small businesses, in particular, struggle to understand how to correctly classify workers and apply award conditions. Adding more rigid rules won’t make things easier. It adds more confusion, not clarity, and is not really about the “protection” of penalty rates. 

Instead, it’s about the government not allowing the Commission to proceed with applications it does not agree with. That proposition is doubly reinforced when considering that award-permitted individual flexibility agreements between an employer and employee, so long as they meet legislative safeguards and the genuine needs of the parties, remain as a useful option and could include a “rolled up” arrangement that the Bill says must be rejected on an industry wide basis. 

Richard Calver is a Canberra-based industrial relations lawyer.