Businesses slam bill passing, arguing it is a missed opportunity for flexibility at work 

The ability to trade off overtime and penalty rates by agreement with employees, unions, or anybody may be coming to an end.

The Better-Off-Overall-Test (BOOT) appears to supersede these negotiations, with the no-disadvantage rules being applied not in the aggregate per year with offsets, but on a pay run basis.

This recent outcome for Coles and Woolworths provides a referenceable case for future claims. “The (Federal) court found that the employers’ clauses, which attempted to pool over-award payments over 26 weeks to satisfy award obligations, were ineffective. The court held that a payment from an employer can only discharge a corresponding obligation to pay an entitlement under the award within the same pay period (e.g., fortnightly or weekly); the annual or 26-week pooling arrangement was deemed an “accounting abstraction”. The court also rejected the argument that “over-award” payments made in some pay periods could be used to offset underpayments in other periods.

This outcome will drive the need to maintain employee timekeeping records, even for annualised and other salaried employees who are below the top $185k pa level, which will facilitate the BOOT comparison. Many different forms of flexible arrangements may also need to be reviewed as options for productivity improvements and increased employee salaries. “For many Australians, penalty and overtime rates mean the difference between getting by and falling behind. This legislation guarantees their earnings are no longer at risk,” the minister said.

The article by  Dexter Tilo HBR Magazine – 29 Aug 2025 

The bill to protect penalty and overtime rates for 2.6 million workers in Australia has passed Federal Parliament.

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 aims to prevent penalty and overtime rates from being reduced, including by stopping the substitution of these payments with other forms of compensation that would lower employees’ extra pay.

The bill passed Parliament on Thursday despite strong opposition from businesses.

Employment Minister Amanda Rishworth said that penalty and overtime rates are essential entitlements for employees who work public holidays, weekends, late nights, and early mornings.

“Penalty and overtime rates are not a bonus or a luxury. They are a core entitlement to help those important workers in our society who work weekends and overtime hours,” Rishworth said in a statement.

She previously noted that 2.6 million modern award-reliant workers will be protected by the legislation. This includes women, part-time workers, those under the age of 35, and those working on a casual basis.

“For many Australians, penalty and overtime rates mean the difference between getting by and falling behind. This legislation guarantees their earnings are no longer at risk,” the minister said.

Criticism from businesses

The bill’s passing drew strong criticism from businesses, who claimed that this will lead to less flexible workplace arrangements.

“This will restrict the ability for businesses to provide the flexibility that employees increasingly demand, such as the ability to work from home or other hybrid arrangements which are mutually agreeable to employers and employees,” said Andrew McKellar, chief executive officer of the Australian Chamber of Commerce and Industry, in a statement.

A previous push from businesses sought the introduction of “exemption rate” clauses in modern awards, where employees would get a higher base pay in exchange for their penalty and overtime rates.

There have also been moves to eliminate some allowances for employees who are working from home. This includes clothing and footwear allowances, as well as overtime meal allowances.

“The Bill creates rigidity in workplace arrangements, hindering flexibility, productivity, and simplicity, while increasing complexity for employers and employees alike,” McKellar said.

“By locking in practices of the past and removing the ability to deal with challenges of the future, this Bill fails to recognise that the broader community debate has moved on and embraced the reality that flexibility and adaptability are key to business viability and job creation.”

No effort to abolish penalty rates

Retailers in Australia also said the bill’s passing is a missed opportunity for flexibility that would lift salaries.

“The bill is yet another layer of regulatory burden which creates more problems than it solves,” said Chris Rodwell, chief executive officer of the Australian Retailers Association, in a statement.

“It effectively forbids businesses and their employees from negotiating the incorporation of penalty rates into base salary, an option which could lift that salary by as much as 135%.”

According to Rodwell, the bill is based on the assumption that there are efforts to eliminate penalty rates.

“There has been no effort to abolish penalty rates,” he said. “The focus has been on giving employees a choice around their salary, allowing them to opt for a higher base salary in lieu of penalty rates, and to improve job security.”

Unions welcome bill’s passing

Unions, however, welcomed the passage of the legislation, saying penalty rates are an essential part of Australians’ take-home pay.

“Unions welcome the Albanese Government delivering on this election promise. Without these laws, workers in retail, admin, banking, and finance would stand to lose thousands of dollars a year under proposals by big employer lobby groups,” said Sally McManus, secretary of the Australian Council of Trade Unions, in a statement.

“Workers’ pay will no longer be at risk from employers engaging in a race to the bottom to strip away basic protections needed to maintain the services we all rely on.”