The Labor Government’s Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 aims to close loopholes that have allowed employers to roll penalty rates into single rates of pay, potentially leaving employees worse off financially.
Need to know
- A new provision in the Fair Work Act 2009 (Cth) will require the Fair Work Commission to ensure modern awards do not reduce penalty or overtime rates.
- It targets practices like “rolled-up” rates that can leave workers taking home less pay for overtime, weekend, or irregular hours.
- Employers in award-covered industries need to prioritise payroll compliance and make any adjustments to ensure they are paying proper entitlements under modern awards.
Key changes proposed by the Bill
The Federal Labor Government has introduced the Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 (Bill) into Parliament with the objective of “protect[ing] penalty and overtime rates for modern award-reliant employees”. The Bill amends the Fair Work Act 2009 (Cth) (Fair Work Act) to insert a new section 135A requiring the Fair Work Commission (Commission), in exercising its powers to make, vary or revoke modern awards, to ensure that:
- penalty rates or overtime rates that employees are entitled to receive are not reduced; and
- modern awards do not include terms that substitute employees’ entitlements to receive penalty rates or overtime rates where those terms would have the effect of reducing the additional remuneration that any employee would otherwise receive for working overtime, unsocial or irregular hours, working on weekends or public holidays, or working shifts.
Scope and timing
The amendments will apply prospectively to current and future applications before the Commission to introduce, vary or revoke an award. The Bill was first read in the House of Representatives on 24 July 2025 and was passed by the House of Representatives on 31 July 2025 after the insertion of an additional subsection 135A(3) which clarifies that the amendments would not compel the Commission to exercise its powers to make, vary or revoke modern awards or to undertake a review of all modern awards or award terms that are outside the scope of an application before the Commission. The Bill was passed by the Senate on 28 August 2025 and will commence on the day it receives Royal Assent
According to the Minister for Employment and Workplace Relations, the Hon Amanda Rishworth MP (Rishworth), the Bill will “ensure the wages of around 2.6 million modern award-reliant workers are protected” by closing the loopholes in the current framework which allow for an employer to ‘roll-up’ an employee’s penalty rates and overtime rates into a single rate of pay that ultimately sees the employee taking home less pay.
The Bill comes off the back of a number of applications made to the Commission by employers in the banking, retail and clerical sectors to introduce award variations which would allow for rolled-up rates of pay. For example, earlier this year, the Australian Retailers Association (ARA) applied to vary the General Retail Industry Award 2020 to introduce a voluntary option for engaging and paying salaried managers a higher rolled-up rate – commonly known as salary absorption. While the ARA submitted that such arrangements operate successfully in other awards and would enhance productivity without disadvantaging employees, Rishworth described such applications as attempts to “trade away penalty rates of lower-paid workers on awards”.
Likely implications of the Bill if passed
In practice, it appears likely that the amendments will prevent the Commission from making or varying modern awards that would allow an employee’s entitlements to be rolled up into a single rate of pay. Indeed, given the sheer scale of modern award industries and the number of rostering possibilities, it seems unlikely that the Commission could be satisfied in many cases that no single employee could be left financially worse off at any single time by receiving a rolled-up rate of pay.
It is important to note that the Bill is directed at the Commission’s prospective exercise of power to make, vary or revoke modern awards. As such, existing provisions in modern awards which currently allow for annualised wage arrangements or contractual set-off clauses will, until varied or revoked, remain effective. Employers in award-covered industries will still need to comply with the terms of the relevant modern award and ensure that their employees receive financial compensation that is not less than the amount they would be entitled to receive from wages and other entitlements under the award for working their particular pattern of work.
It remains to be seen whether this change will have a flow on effect in relation to rolled-up terms negotiated under Enterprise Agreements and their associated assessment under the ‘better off overall test’. The Bill’s accompanying Explanatory Memorandum clarifies that the amendments will not impact the operation of flexibility terms in modern awards under the existing framework, which enable individual employees and their employers to agree on an arrangement to vary the effect of a modern award to meet the genuine needs of the employee. The amendments will also not impact the Commission’s power to vary a modern award to correct an error, remove ambiguity or uncertainty or otherwise curtail the Commission’s discretionary power to insert penalty or overtime rates into new modern awards.
Employers in award covered industries should undertake appropriate reconciliations to ensure those award-covered employees are paid in accordance with the applicable award. Given the Fair Work Ombudsman’s oversight and focus on underpayment claims and the new age theft provisions, it is imperative that employers ensure payroll compliance is a key area of focus in their business.
If you would like to discuss the impact of this Bill on your organisation, please contact Roxanne Fisch in our Workplace and Safety team.
