Warning to employers when using a flat rate of pay

Recently, an employer was fined $115,000 for breaches of the Fair Work Act 2009 (Act) relating to paying a flat rate of pay under an Individual Flexibility Arrangement (IFA).  It was intended that the flat rate of pay left the worker “Better-Off-Overall” compared to paying in accordance with applicable Award rate and applicable allowances, penalties and loadings under it.  However, the employer did not monitor the hours of the employee and make appropriate changes to the pay rate when the employee undertook additional hours not contemplated.  When the employee queried if the rate was sufficient to compensate for the hours worked, he was dismissed. 

The Court found the employer had breached the Act 13 times in relation to underpayments pursuant to the Award and the Act, including failing to ensure employees were “Better-Off-Overall” under an IFA.

All employers should be mindful that should an employee receive a flat rate of pay, both the employer and employee must enter into an IFA to vary the effect of the Award.  The IFA must comply with the requirements of the Award. Further, should an employee work additional hours, it is the employer’s responsibility to ensure the rate of pay is sufficient to leave the employee better off than if paid in accordance with the Award. 

Fair Work Ombudsman v VIP Security Services Pty Ltd & Anor [2018] FCCA 1969 (20 July 2018)

Disclaimer: This summary is not legal advice and for more information on Award obligations and IFAs, call NECA Legal (WA) Pty Ltd on (08) 6241 6129 or email necalegalwa@ecawa.org.au.