This is a revised version of the Preliminary Bills Digest published on 28 July 2025.

Purpose of the Bill

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 (the Bill) seeks to amend the Fair Work Act 2009 (FW Act) to provide that the Fair Work Commission (FWC) must, when making, varying or revoking modern awards under Part 2-3 of the FW Act, ensure that:

• penalty or overtime rates are not reduced, and
• modern awards do not include terms that would 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.

Structure of the Bill

The Bill contains one schedule which inserts:

• new section 135A into Division 2 of Part 2-3 of the FW Act
• new Part 19 into Schedule 1 of the FW Act.

Background

Overview of penalty and overtime rates

Although the FW Act does not define ‘penalty rates’ and ‘overtime rates’, the Fair Work Ombudsman distinguishes these terms as follows:

• ‘Penalty rates are higher pay rates that can apply when an employee works particular hours or days such as evenings, weekends or public holidays’
• Overtime rates are higher rates of pay payable for ‘work performed outside the ordinary hours listed in an award or agreement’.

The origin of penalty rates can be traced back to at least 1909.[1] Historically, penalty rates existed to:

• compensate employees working outside ordinary hours, and
• deter employers from scheduling work outside ordinary hours.

This position has, however, changed. Employment law academic, Andrew Stewart notes that the FWC has stated that the ‘modern purpose of penalty rates is [no longer] to deter the scheduling of work at anti-social times, but to compensate workers for the disamenity involved.’[2]

Stewart also notes that since the 1980s, not only have there been changes to the rationale for penalty rates, but also to the rationale for overtime payments ‘especially in sectors such as retail and hospitality where consumer demand has prompted businesses to expand their trading hours’.[3]

Through these shifts, the setting of compensation for non-standard hours of work has been a point of contention, particularly in relation to penalty rates. Stewart notes (emphasis added):[4]

The level at which penalty rates are set by awards has attracted continual criticism from employer groups, especially in sectors where consumer demand requires expanded trading hours. A number of applications to reduce or eliminate penalty rates were made to the FWC as part of the ‘four-yearly’ review of modern awards …. In its 2015 report on the workplace relations framework, the Productivity Commission expressed strong support for the concept of penalty rates and accepted that there is a case for imposing a premium for work on weekends. But it also recommended that for retail and hospitality workers (though not others), Sunday rates should be reduced to match those set for Saturdays, on the basis that the social impact of working on a Sunday was no longer what it used to be.

Protections for penalty and overtime rates under the FW Act

Penalty and overtime rates are not part of the National Employment Standards and, as such, are not part of the minimum, non-displaceable standards available to employees subject to the FW Act. However, penalty and overtime rates are terms that may be included in modern awards under section 139 of the FW Act, and are also ‘permitted matters’ for the purpose of section 172 of the FW Act.[5]

On 21 February 2025, former Minister for Employment and Workplace Relations (Employment Minister), Senator Murray Watt, made a submission to the FWC as part of proceedings involving a number of applications to vary the General Retail Industry Award 2020. In this submission, the Minister noted, among other things:

Penalty rates and overtime rates are an essential feature of minimum terms and conditions in modern awards and should not be reduced by variations to the Award in this matter [para 6.c].

Following this, on 19 April 2025 the former Employment Minister issued a media release announcing the Albanese Government’s commitment to ‘legislate to protect penalty rates in awards’.

After the 2025 Federal election, the current Employment Minister, Amanda Rishworth reiterated on 29 May 2025 ‘the Australian Government's intention to legislate as soon as possible following the resumption of the Australian Parliament to protect penalty rates in modem awards from being reduced or removed’ (emphasis added).

The introduction of this Bill to the Parliament was then announced on 19 July 2025. This announcement contained a commitment to protect not just penalty rates, but also overtime rates. In the second reading speech on the Bill, the Employment Minister stated that:

Penalty rates and overtime rates matter. They are a long-standing feature and a vital part of the modern award safety net, which supports some of the lowest paid workers in our country.

Policy position of non-government parties/independents and relevant stakeholders

At the time of writing, the Coalition has not expressed a firm position on the Bill.

The Shadow Minister for Industrial Relations and Employment, Tim Wilson stated in a media release on 24 July 2025:

The Coalition supports penalty rates because we want to empower Australians to get ahead and have agency over their future.

The Coalition is carefully considering its position on this legislation to back workers and small businesses to get ahead. If the government wants our support they should get basic information on its impact.

The Greens have in the past expressed a position that may indicate support for the Bill, stating that (p. 4):

Minimum standards such as penalty rates, overtime, loadings and allowances must be protected to prevent them being negotiated out of agreements.

However, it is not clear at present what the Greens’ precise position in relation to this Bill is.

At the time of writing, the position of other parties and independents on the Bill was also not known.

Unions, such as the Australian Council of Trade Unions (ACTU) and the Australian Nursing and Midwifery Federation, have expressed support for the Bill.

In contrast, business groups, such as the Australian Chamber of Commerce and Industry (ACCI) and AI Group, have been critical.

• The ACCI described the Bill as a ‘backwards step’ that has ‘the practical effect of prohibiting employers and their employees from negotiating to incorporate penalty rates in return for a higher base salary’
• AI Group argued that the Bill was ‘badly drafted’ and would ‘make it harder for employer to employ people who want to work when it suits them’.

Key issues and provisions

Part 2-3 of the FW Act concerns modern awards. Division 2 of this Part contains the modern awards objective, which, in broad terms, requires the FWC to ensure that modern awards provide a fair minimum safety net of terms and conditions, considering among other things, the need, set out in paragraph 134(1)(da), to provide additional remuneration for employees working:

• overtime
• unsocial, irregular or unpredictable hours
• weekends or public holidays
• shifts.

Furthermore, Part 2-3 provides, under subsection 157(1), that the FWC has a general power to make, vary and revoke modern awards if satisfied that doing so is necessary to achieve the modern awards objective. The FWC also has other powers exercisable in different circumstances to make, vary and/or revoke modern awards under other sections contained in Part 2-3 of the FW Act.

Item 1 of the Bill proposes to insert new section 135A into Division 2 of Part 2-3 of the FW Act to require the FWC to ensure that in exercising these powers to make, vary and revoke modern awards:

• penalty or overtime rates are not reduced (new paragraph 135A(1)(a)), and
• modern awards do not include terms that substitute penalty or overtime rate entitlements with alternative entitlements which would reduce additional remuneration from penalty or overtime entitlements that any employee would otherwise receive (new paragraph 135A(1)(b)).

New paragraph 135A(1)(a) would guarantee that penalty and overtime rates that already exists in modern awards are not reduced. This paragraph would not, however, be applicable to any modern awards that do not contain penalty or overtime rates.

New paragraph 135A(1)(b) appears to be directed towards ‘loaded’ rate of pay provisions that ‘roll up some or all applicable penalties, loadings and allowances into a single rate of pay’[6] in a way that leaves some employees worse off than if the ‘loaded’ provisions did not apply. For example (using a simplified version of the case study discussed at pages 7 and 8 of the Explanatory Memorandum (EM) to the Bill):

• If a proposed variation of a modern award would insert a ‘loaded’ rate of pay provision into the award to allow an employer to pay employees at a rate of 120 per cent of their minimum weekly rate instead of paying the minimum weekly wage plus other entitlements, like allowances or leave loading, and
• If, as a result, this would reduce the additional remuneration that at least one employee would have received had the ‘loaded’ rate of pay provision not applied, and had they instead been paid their minimum weekly wage plus other relevant additional entitlements (as per paragraph 134(1)(da) of the FW Act), then
• New paragraph 135A(1)(b) would prevent such a term from being included in the modern award.

It should also be noted that, as the EM to the Bill explains (p. 7) (emphasis added):

The amendments would not require the Commission to insert penalty and overtime rates into all modern awards. Penalty and overtime rates would remain types of terms that ‘may’ be included in modern awards (see paragraphs 139(1)(d)–(e)). It would remain up to the Commission’s discretion whether those terms should be included in modern awards based on its application of the modern awards objective. In particular, the Commission would need to consider paragraph 134(1)(da) …

New subsection 135A(2) provides that the protections provided for penalty and overtime rates contained in new subsection 135A(1) do not limit the operation of:

• section 144 of the FW Act, which requires modern awards to contain flexibility terms enabling agreement on individual flexibility arrangements to vary the effect of the award on an employee
• section 160 of the FW Act, which allows the FWC to vary a modern award to address ambiguities, uncertainty, or errors.

New Part 19 of Schedule 1 of the FW Act at item 2 of the Bill provides for the application of the amendments contained in new section 135A. It provides that new section 135A applies prospectively to:

• future applications for the making of a new award
• future applications for the variation or revocation of an existing modern award
• existing applications currently before the FWC for the making, variation or revocation of a modern award.

The Bill and enterprise agreements

The Bill does not provide any direct protections for penalty or overtime rates in enterprise agreements. This appears to be because enterprise agreements can, but for exceptional circumstances, only be approved by the FWC if the FWC is satisfied that each award covered employee for a proposed enterprise agreement would be better off overall if the proposed enterprise agreement applied to them instead of the modern award (including those modern awards that contain penalty and overtime rates). Under , existing section 193A of the FW Act, when determining if each employee would be better off overall if a proposed enterprise agreement applied to them instead of a modern award, the FWC must undertake a global assessment, including a consideration of patterns or kinds of work, or types of employment that  are reasonably foreseeable at the test time.

This existing requirement makes it very difficult to get enterprise agreements that include ‘all up’ or ‘rolled up’ rates of pay to be approved where one or more employees have patterns of work where a substantive proportion of the hours worked attract penalty or overtime rates under existing modern award provisions.

The measures in the Bill designed to prevent ‘rolled up’ rates of pay being incorporated into modern awards that currently contain penalty and overtime rates, may indirectly make it slightly more difficult for enterprise agreements containing ‘all up’ or ‘rolled up’ rates of pay to gain approval in the future. This is because the Bill, if enacted, would ensure that the comparator used by the FWC when applying the better off overall test—the relevant modern award—will continue to include penalty and overtime rates, rather than ‘rolled up’ rates of pay.  

As such, the Bill may protect the minimum employment conditions that must be provided in some enterprise agreements.