I’m dissecting Fair Work education posts so you don’t have to #2

Ok! Part 2 of our blog unpacking Fair Work education posts and what they mean for your business.

Miss the first post? That’s ok, you can catch up here

*this post applies to National System employers, WA based sole traders, partnerships and unincorporated organisations fall under the WA Industrial Relations SystemReferences to an “Employee Agreement” relates to a registered collective agreement.


I have an Individual Flexibility Agreement (IFA) built into my contracts, this allows me to pay a flat rate of pay, based on contracted hours of 38 hours per week, whilst establishing rostered work hours greater than that. I pay well above the Award so it’s all ok – Paying over the Award doesn’t absolve you from adhering to Award terms and conditions, the use of IFA’s to achieve flat rates of pay for new employees is unlawful.

So much to unpack with this common misconception. Let’s start with IFA’s, above Award payments and flat rates of pay.

Each Award will stipulate ordinary hours of work (38 hours per week), the span of ordinary work hours (ie: to be worked between 7am – 7pm), allowances payable, penalty rates, breaks and loadings such as annual leave loading. No matter how much above Award you pay your employees they are still entitled to these additional amounts over and above their base salary / hourly rate.

A carefully worded contract of employment is required if you wish to lawfully offset these items against the Award entitlements. Sometimes this is done in SME’s by embedding an IFA into the contract of employment – this practice is unlawful.

An IFA must be one that is genuinely made by the employer and the individual employee without coercion or duress (which means acceptance of the IFA can’t be a condition of employment).  An agreement may only be made after the individual employee has commenced employment with the employer.

Another rarely understood fact of putting IFA’s to use in this way is that either party can terminate the IFA, that means if your employee terminates the IFA your flat rate becomes a base hourly rate + penalty rates.

In addition, the way “ordinary hours” is viewed by Fair Work and accompanying legislation and Acts (such as Superannuation and Long Service Leave) is what is customary for the employee to work and whether there is a discernible difference between what the ordinary hours are and what quite clearly is additional hours. Having a contract of employment written as 38 hours per week (and accruing leave entitlements at this rate), but, handing the employee a roster of 14 shifts on 7 shifts off, 12 hour days with no separation between pay rates doesn’t pass the pub test.

Which brings me to……….

Fair Work defines “Ordinary Hours” as an employee’s normal and regular hours of work, which do not attract overtime rates.

In offsetting overtime rates to achieve a flat rate of pay you have traded off that safety net of only accruing leave entitlements on 38 hours per week. There is no separate rate of pay to distinguish additional, or overtime hours, therefore the normal hours of work are ordinary hours and entitlements such as leave needs to reflect this.

When it comes to Super If you can’t distinctly identify overtime amounts, all the hours actually worked are included in the employee’s ordinary hours of work. Overtime payments must be clearly identifiable, otherwise all hours worked are OTE.


My employees are paid a salary and the position comes with an expectation of overtime – this is ok as long as the salary more than accommodates the overtime worked, and the expectation of additional hours is reasonable

Common Awards now contain Annualised Salary clauses allowing an employer to satisfy Award entitlements within the base salary. In order to be compliant the employer is required to keep accurate records of the hours worked (ie: timesheets), and be able to demonstrate the salary sufficiently accommodates the actual hours worked if the employee were to be paid as per the Award (ie: penalty rates, allowances and leave loading)

Employers must take into consideration a number of factors when determining if overtime is reasonable. This extends to an individuals personal responsibilities away from work such as child or elder care, industry standards and health and safety matters such as fatigue or increased risk from working at night for example.


Industrial relations is complex, and our system is by no means easy to navigate. As a business owner / leader it is your responsibility to ensure that your business practices are lawful, but more importantly, that you fully understand what your contracts and policies contain and the implications of enforcing such business tools.

The buck stops with you, and you need to ask yourself:

  • Do I understand the advice I’ve been given
  • Do I understand and accept the risk of non-compliance
  • What are the wider implications to this business practice
  • Does it align to the values of the business (are you walking the walk)

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