Modern awards determine the legal minimum terms and conditions of employment for many Australian employees, so you need to ensure you understand how they work and how they are applied.
This article provides a broad overview of what modern awards are and answers questions about awards that MyHR regularly receives from employers and business owners.
What is a modern award?
Modern awards are legally binding documents that establish the minimum terms and conditions of employment in addition to any legislated minimums such as the National Employment Standards (NES).
The entitlements modern awards set out include:
- Minimum rates of pay.
- Arrangements for hours of work, rostering, and breaks.
- Allowances.
- Leave entitlements, loadings, and arrangements for leave.
- Penalty rates and overtime.
- Consultation provisions, e.g. about changes to rosters or hours of work.
There are currently 121 modern awards in general use.
The history of modern awards
The concept of an ‘award’ stems from the early 20th century. They were legal rulings by industrial tribunals, which “awarded” minimum terms and conditions to particular industries or occupations. Over time, thousands of awards developed across federal and state jurisdictions, leading to duplication, inconsistency and complexity.
Modern awards were created by the The Australian Industrial Relations Commission, which consolidated and updated the previous federal and state awards. The process was carried out in 2008-2009. Modern awards were officially introduced on 1 January 2010 by the Fair Work Commission (then Fair Work Australia).
Who is covered by an award?
There are generally two kinds of modern awards: “industry awards” and “occupational awards”.
Coverage in most modern awards is defined according to industry, but some modern awards apply on an occupational basis. In some instances, awards may be both industry and occupational.
Industry awards
Industry awards cover employers in particular industries. For example, the General Retail Industry Award covers employers in the general retail industry, defined as the retail sale or hire of goods or services for personal, household or business consumption.
If there is a classification for the type of work performed by an employee, they will also be covered by the award.
Occupational awards
Occupational awards apply to employees in particular occupations. A good example is the Clerks – Private Sector Award, which applies to employees wholly or principally engaged in clerical work.
If an industry award covers an employer and has classifications that apply to clerical or administrative employees, that industry award will also cover the employee. However, if the industry award does not contain a classification for clerical or administrative, then it’s likely that the Clerks – Private Sector Award will apply to that employee, depending on their duties.
Managers or higher-income employees may not be covered by a modern award even if one applies to the industry they work in. Where a modern award does not apply to an employee, the National Minimum Wage and the NES will form the minimum terms and conditions of employment.
See the list of modern awards at fairwork.gov.au.
How do I know which award covers my employees?
An award applies to an employer and employees depending on the industry they work in and the type of job they do.
Employees can only be covered by one modern award but employers may have employees covered by different awards, depending on the work performed.
Every award has information about who it covers, so it's important to read the award’s coverage and classification clauses to determine who is covered.
The best way to determine the relevant modern award is to consider the industry you work in and compare the duties performed by employees to the award’s classification definitions.
The Fair Work Commission can be called on to correctly determine which award covers an employee.
Use the Fair Work Ombudsman’s tool to find the correct award.
What is the difference between a modern award and a registered or enterprise agreement?
Enterprise agreements are like awards in that they set out minimum employment conditions, but an enterprise agreement only applies to one business or a group of businesses.
Enterprise agreements are created by negotiation between an employer or group of employers and their employees. They are tailored to the circumstances of the business or businesses involved.
An agreement must be reviewed and approved (registered) by the Fair Work Commission.
Modern awards don’t apply when an employer has an enterprise agreement in place. However, if the base rates of pay in an agreement are lower than those in the relevant modern award, the base rates of pay in the modern award apply.
What’s the difference between a modern award and an employment contract?
An employment contract is an agreement (either in writing or verbal) between an employer and an individual employee, setting out the terms and conditions of employment.
The terms of an employment contract can apply in addition to a modern award or enterprise agreement but can’t provide for less than the legal minimum entitlements set out in the NES or the award or agreement.
Regardless of whether an employee has an employment contract, they are covered by the legal minimums.
Learn more about employment contracts in our detailed article.
What is an award-free employee?
Some employers and employees are not covered by an award or registered agreement, and the employees are considered to be “award-free”.
In these situations, the National Minimum Wage and the NES form the minimum terms and conditions of employment, as well as the terms of an employment contract.
If I pay an award-covered employee a salary, does the award still apply?
Yes, even if you pay an employee a salary, the relevant modern award still applies if they are covered by it.
Paying a salary doesn’t exempt you from your obligations under the award; instead, you must ensure the salary is sufficient to cover all minimum entitlements, including overtime, penalty rates, allowances, and loadings.
To do this effectively, the salary arrangement should be clearly documented in an employment contract that includes a well-drafted "offset" clause. This clause allows the salary to offset specific award entitlements, provided the total pay is no less than what the employee would receive under the award.
Without such protections in place, you risk underpayment claims and non-compliance with the Fair Work Act.
How often do awards change?
Modern awards can be changed by the Fair Work Commission (FWC), and amendments can include changing entitlements, responsibilities, and conditions for employers and employees.
Minimum pay rates in modern awards are reviewed every year by the FWC as part of its Annual Wage Review (it also decides if the national minimum wage should be increased).
The Minister for Employment and Workplace Relations can also ask the FWC to review modern awards.
Before 2018, the FWC was required to review all modern awards every 4 years. As part of its review, it clarified how some award clauses work and changed other clauses.
In October 2022, the FWC confirmed it had completed its final review and most of the updated awards started taking effect at different stages throughout 2020.
How can I stay on top of modern awards?
Correctly identifying and applying modern awards can be tricky for employers, but it is essential. If you incorrectly assume that an employee is not covered by an award or you get the award wrong, you may end up underpaying your employees or not complying with other award terms, such as hours of work or termination processes.
Awards also get reviewed and updated, so you need to ensure you stay up to date with changes to any of the terms and conditions of employment.
The easiest way to handle modern awards (like all employment compliance matters), is to have a solid HR platform. MyHR ensures your employees are covered by the right award, and the employment terms and entitlements are correctly applied to every worker.
Our team of HR experts are always across changes to award and any adjustments are automatically rolled out in the platform.
