Modern Awards form the backbone of statutory minimum employment conditions in Australia. Understanding how they interact with the National Employment Standards (NES), enterprise agreements and individual contracts is critical for avoiding underpayments, penalties and reputational harm.
This comprehensive guide, by our employment lawyers, details the latest legislative requirements and case law to help employers and employees navigate Modern Awards with confidence.
Key Takeaways
- Modern Awards are legally binding instruments under the Fair Work Act 2009 (Cth)
- They apply by operation of law based on industry or occupation coverage
- Awards supplement (but cannot undercut) the NES
- High-income employees above the indexed threshold may be award-free
- Non-compliance can trigger significant civil penalties and back-pay orders
- Regular reviews by the Fair Work Commission (FWC) mean award terms can change
- Detailed classification descriptors determine the correct pay rate within each award
What is a Modern Award?
Legislative Foundation
The legal framework for Modern Awards is set out in the Fair Work Act 2009 (Cth), including the following key provisions:
Part 2-3: This section empowers the FWC to create, review, and vary Modern Awards. The aim is to ensure awards remain relevant and adaptable to changing work environments.
Section 46: A Modern Award will apply to an employee unless a valid enterprise agreement is in place that covers the same employment. This ensures awards act as the default minimum conditions where no negotiated agreement exists.
Section 134: Sets out the modern awards objective. The FWC must ensure that awards provide a fair and relevant minimum safety net of terms and conditions, balancing the needs of employees and employers across the economy.
Section 55: Clarifies that employment contracts or enterprise agreements cannot exclude or undercut more beneficial award terms. If a contract provides less favourable conditions than the applicable award, the award will override the contract to the extent of the inconsistency.
Typical Award Content
Modern Awards usually include terms and conditions covering the following aspects:
- Ordinary hours of work and rostering
- Minimum wage rates and pay points
- Overtime and penalty rates
- Allowances (e.g. travel, uniforms, first-aid)
- Consultation and dispute-resolution procedures
- Classification structures for different job levels
Coverage and Application of Modern Awards
Whether an award applies depends on the nature of the work being performed and the industry or occupation involved.
Employers must assess both the industry they operate in and the actual duties of the employee to determine the correct award coverage.
Industry vs Occupational Awards
- Industry Awards: These apply to businesses operating within a defined industry sector, covering most roles within that sector. For example, the Clerks – Private Sector Award 2020 applies to clerical and administrative roles performed in a wide range of industries, as long as the employer’s core business falls within the award’s scope.
Occupational Awards: These are based on the type of work performed, regardless of the industry in which the employee works. For instance, the Graphic Arts, Printing and Publishing Award 2020 applies to graphic designers across different industries, provided their duties align with the award’s classifications.
Award-Free Employees
Some employees may fall outside the scope of any Modern Award and are considered award-free. This typically includes:
Employees who earn above the high-income threshold, which is AUD $167,500 for FY 2024/25 (as per s 329 of the Fair Work Act).
Certain senior professionals (such as senior managers, accountants, and in-house legal counsel) whose duties do not align with any classification level in a Modern Award.
Common Misconceptions
- Paying “above award” does not remove award coverage
- Job titles alone do not determine coverage (Muscat v Chase Commercial Pty Ltd [2018] FWC 1398)
- Employers and employees cannot opt in or out of coverage by agreement.
Interaction with the National Employment Standards
The NES set ten minimum entitlements for all national-system employees. Where an award provision is less beneficial than the NES, the NES prevails (s 61). For example: if an award allows 8 weeks parental leave but the NES mandates 12, the employee receives 12.
Learn more about Employment Contracts and the NES in our article.
Enterprise Agreements and the “Better Off Overall Test” (BOOT)
Enterprise agreements must pass the BOOT – employees must be better off overall compared with the relevant modern award. Once approved, the agreement displaces the award, but the award remains the benchmark for future renegotiations.
Classification and Pay Rates – Getting It Right
Step-by-Step Process for Employers
- Identify the appropriate award based on industry/occupation
- Review the classification descriptors in Schedule A or equivalent
- Match the employee’s actual duties to the closest descriptor
- Confirm pay point progression rules (e.g. annual increments)
- Document the classification in the employment contract and onboarding material
Practical Example
A marketing coordinator employed by a manufacturing company may still fall under the Clerks – Private Sector Award, not the Manufacturing and Associated Industries Award, because clerical/administrative functions are specifically carved out.
Drafting Employment Contracts in an Award Context
Inclusion of Award Entitlements
Employment contracts should clearly state:
- Applicable award and classification
- Which monetary components are offset by any “all-inclusive” salary
- A clause affirming that the salary is intended to absorb identified award loadings and penalties, with reconciliation at least annually
Risks of Silent Contracts
Where a contract is silent, an above-award salary may be treated as base rate only, requiring separate payments for overtime, penalty rates and allowances.
Learn more about employment contract clauses in our article.
Penalties for breaching Modern Award provisions
Contravention | Maximum Penalty (Ordinary) | Maximum Penalty (Serious – s 557A) |
Body corporate | AUD $63,000 per breach | AUD $630,000 per breach |
Individual involved | AUD $12,600 per breach | AUD $126,000 per breach |
The Fair Work Ombudsman can litigate, while unions and affected employees may also commence proceedings (s 539). Back-pay orders can cover up to six years of underpayments.
Best-Practice Tips for Employers
To stay compliant and reduce risk, employers should adopt the following best-practice measures:
- Conduct an annual audit of award coverage and classifications
- Subscribe to Fair Work Ombudsman (FWO) email updates or monitor the FWO Modern Awards List
- Keep time and wages records compliant with the Fair Work Regulations 2009
- Provide employees with a copy or link to the relevant award on commencement
- Train payroll and HR staff on award interpretations
- Use digital payroll systems that update rates automatically following the Annual Wage Review
Learn more in our Fair Work Act Guide for Employers.
Need tailored advice on Modern Awards or assistance drafting compliant employment contracts? Contact our employment law team to book a consultation.
Frequently Asked Questions
How do I determine which modern award applies to my employee?
Examine both the industry coverage clause and the classification descriptors, focusing on the employee’s actual duties rather than their job title.
Learn more in our article on interpreting coverage clauses in modern awards.
Can I pay a flat salary instead of award penalty rates?
Yes, this is typically called an “annualised salary“. It’s important that the contract specifies which award entitlements are absorbed and that the employer conducts periodic reconciliations to ensure the employee remains better off overall.
What is the high-income threshold for being award-free?
For the 2024/25 financial year, it is AUD $167,500 (indexed annually on 1 July).
How long can the Fair Work Ombudsman pursue underpayments?
Up to six years from the date the underpayment arose.
Are contractors covered by Modern Awards?
Generally no, but sham contracting provisions (ss 357–359) may re-characterise a contractor as an employee, triggering award coverage and back-pay liabilities.
