Chapter 1Introduction
1.1The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 (bill) seeks to prohibit variations to modern awards that would reduce or remove an employee's penalty or overtime rates.
1.2The bill would ensure that no terms are included in modern awards that would substitute penalty or overtime rates with alternative entitlements that would reduce additional remuneration from penalty or overtime rates that any employee would otherwise receive.
1.3The Australian Government (government) has introduced an amendment to clarify that the bill would not require the Fair Work Commission (FWC) to undertake a review of all modern awards.
Legislating protections for penalty rates
1.4Currently, modern awards, together with the National Employment Standards, provide employees with a safety net of entitlements, such as additional remuneration for employees working overtime, or on weekends or public holidays.
1.5As part of the safety net, the FWC is required to ensure that modern awards provide a fair minimum set of terms and conditions that consider, among other things, whether there is a need to provide additional remuneration for employees working overtime, unsocial, irregular or unpredictable hours, weekends or public holidays or shiftwork.
1.6In February 2024, the Australian Retailers Association made an application to the FWC under section 158 of the Fair Work Act 2009 (FW Act) to vary multiple clauses in the General Retail Industry Award intended to improve award flexibility, and the FWC is currently considering award variations to introduce rolled up rates in the clerical and banking sectors.
1.7As part of these proceedings, the former Minister for Employment and Workplace Relations made a submission to the FWC which noted that penalty and overtime rates were 'an essential feature of minimum terms and conditions in modern awards and should not be reduced'. The former Minister subsequently issued a media statement announcing that a 're-elected Albanese Labor Government will legislate to protect penalty rates in awards, ensuring the wages of around three million workers do not go backwards'.
1.8The Department of Employment and Workplace Relations (DEWR) consulted with key stakeholders in developing the bill, including confidential consultation on an exposure draft of the bill with state and territory officials and the Committee on Industrial Legislation—a subcommittee of the National Workplace Relations Consultative Council.
1.9The bill would fulfill the government's election promise by legislating a principle that would ensure specified penalty or overtime rates in modern awards could not be reduced, and close loopholes that 'allow employers to "roll-up" penalty and overtime rates into a single pay rate that does not fairly compensate award-reliant employees for the penalty and overtime rates they would have otherwise received'.
Overview of the bill
1.10The bill comprises one schedule which makes amendments to the FW Act to ensure that pre-existing penalty and overtime rates in modern awards are not reduced. The bill would provide that the FWC must, when making, varying or revoking modern awards, ensure that:
penalty or overtime rates are not reduced; and
modern awards cannot include terms that substitute penalty or overtime entitlements with alternative entitlements which reduce additional remuneration from penalty or overtime rates that an employee would otherwise be eligible for.
Penalty and overtime rates
1.11The bill would insert a new section 135A into Division 2 of Part 2-3 of the FWAct establishing a clear principle that the FWC in the exercise of its powers, ensure that modern awards do not reduce or have the effect of reducing penalty and overtime rates.
1.12The bill would prohibit reductions to existing penalty and overtime rates—which are generally expressed as a percentage rate based on the employee's minimum or ordinary rate of pay—contained in the relevant terms of the award. The Explanatory Memorandum (EM) notes that not all modern awards contain penalty and overtime rate clauses.
1.13In addition, the bill would ensure 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 rates that an employee would otherwise receive.
1.14The proposed amendments would not require the FWC to insert penalty and overtime rates into all modern awards. They would remain types of terms that 'may' be included in modern awards. The FWC would retain its discretion to decide whether those terms should be included in modern awards based on its application of the modern awards objective.
1.15According to the EM, the bill would not impact the operation of flexibility terms in modern awards that enable an individual employee and an employer to vary the terms of a modern award to meet their genuine needs, or the FWC's discretion to vary an award to remove an ambiguity or uncertainty or to correct an error.
1.16The government has introduced a proposed amendment to clarify that the bill would not require the FWC to review all awards to ensure compliance with the new principle.
Saving and transitional provisions
1.17The bill provides for the application of the amendments contained in the proposed new section 135A to apply prospectively to:
future applications for the making of a new award;
future applications for the variation or revocation of an existing modern award; and
existing applications currently before the FWC for the making, variation or revocation of a modern award.
Financial implications
1.18The EM states that the bill would not have a direct financial impact.
Consideration by other parliamentary committees
1.19When examining a bill, the committee considers any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills (ScrutinyCommittee) and the Parliamentary Joint Committee on Human Rights (Human Rights Committee).
1.20At the time of writing, both the Scrutiny Committee and the Human Rights Committee have not made any comments in relation to the bill.
1.21While the Human Rights Committee did not make any comment on the bill, the EM's statement of compatibility with human rights concluded that the bill is compatible because it promotes human rights.
Conduct of the inquiry
1.22On 31 July 2025, the provisions of the bill were referred by the Senate to the committee for inquiry and report by 21 August 2025.
1.23The committee advertised the inquiry on its website and invited submissions by 8 August 2025. The committee received 27 submissions which are listed at Appendix 1 of this report. The public submissions are available on the committee's website.
1.24The committee held a public hearing in Melbourne on 13 August 2025. A list of the witnesses who gave evidence at the hearing is included at Appendix 2.
Acknowledgements
1.25The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at the public hearing.