FEATURE ARTICLE: TRENDS IN EMPLOYEE METHODS OF SETTING PAY AND JURISDICTIONAL COVERAGE

INTRODUCTION

Statistics regarding how employees' pay is set (such as through awards or agreements) are of interest in the context of workplace relations reforms and the formulation of workplace relations and wages policy. Recent changes to the workplace relations system, firstly through the introduction of the Workplace Relations Amendment (WorkChoices) Act 2005 and the subsequent Fair Work Act 2009 have renewed interest in employees' methods of setting pay, especially at the jurisdictional level where pay setting arrangements are covered. In particular, the extent of 'award reliance' is of interest in relation to the annual Federal Minimum Wage determination that affect employees covered by the federal jurisdiction (or national workplace relations system).

The two-yearly Survey of Employee Earnings and Hours, last conducted in respect of May 2010, contains statistics on the composition and distribution of employee earnings and hours for which paid, as well as information on how employees' pay is set - by award only, collective agreement or individual arrangement. Estimates from this survey are used by government departments, employer associations, trade unions, welfare groups and academic researchers to develop and review wages and labour market policies, to inform the award determination process, and for research into various aspects of the labour market.

This article provides the latest information on methods of setting pay and jurisdictional coverage, as well as trends over time. It focuses on employees in the federal jurisdiction and presents information on a range of job characteristics, including industry, occupation and full-time/part time status. Finally, this article characterises the distribution of employee earnings for each of the methods of setting pay for those in the federal jurisdiction.


BACKGROUND

The workplace relations environment

Estimates from the publication Employee Earnings and Hours, Australia, May 2010 (cat. no. 6306.0) were compiled based on the workplace relations environment following the introduction of the Fair Work Act 2009 and the subsequent introduction of the Fair Work (State Referral and Consequential and Other Amendments) Act, which allowed for the extension of the Fair Work Act to states that refer workplace relations related matters to the Commonwealth. From 1 January 2010, private sector employers in New South Wales, Queensland, South Australia and Tasmania were covered by the national system. The Fair Work system replaced the Workplace Relations Amendment (Work Choices) Act 2005 that was in place at the time of the August 2008 Survey of Employee Earnings and Hours.

The key elements of the Fair Work system include:

• a legislated safety net of 10 National Employment Standards;
• new modern awards; and
• revised enterprise bargaining arrangements, including the cessation of registered individual agreements.

Under the Fair Work system, the majority of employees come under the federal jurisdiction. The following groups of employers (and consequently their employees) are covered by the national system:

• constitutional corporations (including financial or trading corporations - generally Pty Ltd or Ltd);
• the Commonwealth and Commonwealth authorities;
• employers who employ flight crews, maritime employees or waterside workers;
• all employers in the Australian Capital Territory and Northern Territory;
• most Victorian employers; and
• private sector employers in New South Wales, Queensland, South Australia and Tasmania.

The following groups of employers (and consequently their employees) are generally not covered by the national system:

• State government;
• Australian corporations whose main activity is not trading or financial; and
• sole traders and partnerships in Western Australia.

Jurisdictional coverage

Employees are deemed to be under the federal or state workplace relations jurisdictions for pay-setting purposes based on the legal status of their employer and the prevailing pay-setting instrument that applies to their employees.

Methods of setting pay

Information on the methods of setting pay for employees (excluding owner managers of incorporated enterprises) refers to how the main part of an employee's pay was set, or determined, in the survey reference period:

• Employees classified to 'Award only' had their rate of pay specified by an award and were not paid more than that award rate of pay.
• Employees classified to the 'Collective agreement' category had the main part of their pay set by collective agreement, or an enterprise award.
• Employees in the 'Individual arrangement' category include those who had the main part of their pay set by an individual contract, registered individual agreement (e.g. Australian Workplace Agreement), common law contract, or an agreement to receive over award payments.

Owner managers of incorporated enterprises - persons who worked in their own incorporated business - were excluded from the method of setting pay classification and, as a result, were identified separately.


TRENDS IN EMPLOYEE METHODS OF SETTING PAY AND JURISDICTIONAL COVERAGE

Methods of setting pay

The Fair Work Act 2009 places an emphasis on 'enterprise level collective bargaining agreements' as the preferred method of setting pay over (registered) individual agreements. In May 2010, the most common method of setting pay for all employees was collective agreements (43%), while a further 37% of employees had their pay set through an individual arrangement. In line with the Fair Work Act 2009 containing no provisions for federally registered individual statutory agreements (formerly known as Australian Workplace Agreements), almost all (98%) individual arrangements were unregistered. 'Award only' was the least common method of setting pay (15%) in May 2010.

Collective agreements have been the most common method of setting pay for the past decade, with the proportion of employees whose pay was set by this method increasing by 7 percentage points from May 2000 (37%) to May 2010 (43%). The proportion of employees with their pay set by an individual arrangement has increased by 3 percentage points in the 10 years to May 2010, from 34% to 37%. In a sign of the shift away from centralised pay setting arrangements, the proportion of employees whose pay was set by award only has decreased 8 percentage points from 23% in May 2000 to 15% in May 2010.



Jurisdictional coverage

In light of recent changes to Australia's workplace relations system, the majority of employees are now in the federal jurisdiction. To better understand the distribution of employees between the federal and state jurisdiction, this section presents jurisdictional coverage estimates between 2006 and 2010, and 2010 estimates disaggregated by state and sector.

In May 2010, 87% of employees (7.8 million) were in the federal workplace relations jurisdiction. This represents an increase of 9 percentage points since August 2008. The proportion of employees in the state jurisdiction fell from 13% in August 2008 to 9% (833,000 employees) in May 2010. This in part reflects the referral of several states' workplace relations powers with respect to sole traders and partnerships to the Commonwealth,

Table 1. JURISDICTIONAL COVERAGE OF EMPLOYEES PAY-SETTING ARRANGEMENTS, Australia: Proportion of employees - May 2006 - May 2010
		May 2006	August 2008	May 2010
		%	%	%
Federal jurisdiction
	Federal award or agreement(a)	36.1	42.0	44.9
	State award or agreement(b)	9.8	1.3	3.5
	Unregistered arrangement(c)	28.2	30.2	34.6
	Owner manager of incorporated enterprises	5.1	5.0	4.1
	Total federal jurisdiction	79.1	78.5	87.2
State jurisdiction
	State award or agreement	8.8	10.0	8.5
	Unregistered arrangement(c)	3.2	2.9	0.8
	Total state jurisdiction	11.9	13.0	9.3
Unable to be determined(d)		9.0	8.6	3.6
Total		100.0	100.0	100.0
(a) Includes employees transitioning out of the federal jurisdiction. (b) Employees transitioning into the federal jurisdiction. (c) Includes employees receiving over award pay. (d) Employees whose jurisdictional coverage for pay setting was unable to be determined. Source: Employee Earnings and Hours, Australia (cat. no. 6306.0)

By state

With the introduction of the Workplace Relations Amendment (Work Choices) Act 2005, all constitutional corporations entered the federal jurisdiction, joining employers in Victoria, the Australian Capital Territory and Northern Territory who were already in the federal jurisdiction. Following the introduction of the Fair Work Act 2009, all remaining states, with the exception of Western Australia, referred their workplace relations powers to the Commonwealth.

State government employers in New South Wales, Queensland, South Australia and Western Australia; Tasmanian Commonwealth and state public sector employers; and Western Australian private sector employers that are not constitutional corporations remain in their respective state jurisdictions.

In May 2010, Western Australia had the highest proportion of employees in the state jurisdiction (22%), while New South Wales had the lowest (10%).

		NSW	Vic	Qld	SA	WA	Tas	NT	ACT	Aust
		%	%	%	%	%	%	%	%	%
Federal jurisdiction
	Federal award or agreement(a)	36.4	59.2	40.4	41.8	37.1	50.4	61.4	73.6	44.9
	State award or agreement(b)	5.2	–	6.5	7.5	*0.1	3.3	-	-	3.5
	Unregistered arrangement(c)	39.1	36.6	33.5	31.3	25.0	25.6	34.9	24.0	34.6
	Owner manager of incorporated enterprises	4.8	4.2	3.7	3.5	3.6	2.8	3.7	*2.4	4.1
	Total federal jurisdiction	85.5	100.0	84.2	84.0	65.8	82.1	100.0	100.0	87.2
State jurisdiction
	State award or agreement	9.9	–	*12.9	13.6	14.9	np	-	-	8.5
	Unregistered arrangement(c)	–	–	–	*0.1	6.8	np	-	-	0.8
	Total state jurisdiction	9.9	–	12.9	13.7	21.7	*15.6	-	-	9.3
Unable to be determined(d)		4.6	–	2.9	*2.3	12.4	2.2	-	-	3.6
Total		100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
* estimate has a relative standard error of 25% to 50% and should be used with caution np not published — nil or rounded to zero (including null cells) (a) Includes employees transitioning out of the federal jurisdiction. (b) Employees transitioning into the federal jurisdiction. (c) Includes employees receiving over award pay. (d) Employees whose jurisdictional coverage for pay setting was unable to be determined. Source: Employee Earnings and Hours, Australia (cat. no. 6306.0)

By sector

In Western Australia, 77% of private sector employees were in the state jurisdiction in May 2010. In all other states and territories all private sector employees were in the federal jurisdiction. Overall, 98% of private sector employees in Australia were in the federal jurisdiction compared with 46% of public sector employees. Of those states with their own workplace relations systems, the state with the highest proportion of public sector employees in the state jurisdiction was South Australia (64%). All public sector employees in Victoria, the Northern Territory and the Australian Capital Territory were in the federal jurisdiction.

		NSW	Vic	Qld	SA	WA	Tas	NT	ACT	Aust
		%	%	%	%	%	%	%	%	%
Private Sector
	Federal jurisdiction (a) (b) (c)	100.0	100.0	100.0	100.0	76.7	100.0	100.0	100.0	97.6
	State jurisdiction (c)	–	–	–	–	12.0	–	–	–	1.3
	Unable to be determined(d)	–	–	–	–	11.3	–	–	–	1.2
	Total private sector	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Public Sector
	Federal jurisdiction (a) (b) (c)	19.8	100.0	24.2	25.7	28.0	33.0	100.0	100.0	46.4
	State jurisdiction (c)	54.8	–	61.9	63.7	55.4	58.7	–	–	40.7
	Unable to be determined(d)	25.4	–	13.8	*10.6	16.5	*8.3	–	–	12.9
	Total public sector	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Total		100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0

* estimate has a relative standard error of 25% to 50% and should be used with caution
— nil or rounded to zero (including null cells)
(a) Includes employees transitioning out of the federal jurisdiction.
(b) Employees transitioning into the federal jurisdiction.
(c) Includes employees receiving over award pay.
(d) Employees whose jurisdictional coverage for pay setting was unable to be determined.

Source: Employee Earnings and Hours, Australia (cat. no. 6306.0)


EMPLOYEES IN THE FEDERAL JURISDICTION PAID BY AWARD ONLY

Overview

Under the Fair Work Act 2009, Fair Work Australia (FWA) is the body responsible for setting minimum and award wages and conditions for employees in the national workplace relations system, through annual determinations. Employees (and their employers) in the federal jurisdiction whose method of setting pay was award only are directly impacted by FWA determining a change in award wages.

The minimum wage or award determination may also have an indirect effect on other employees in the federal jurisdiction who have an individual arrangement if, for example, they have an arrangement to receive over award payments (such as a set dollar amount or percentage above the award rate). Award rates may also impact on employees whose pay is set by collective agreement due to application of the 'better off overall test', against the relevant modern award. While these broader groups of employees may have their pay affected by changes to awards the data from the Survey of Employees and Hours are not able to identify all employees who are 'award reliant'. Therefore, this section will only profile employees in the federal jurisdiction whose pay was set by award only, in terms of their employment arrangements and job characteristics.

In May 2010, 1.3 million employees in the federal jurisdiction had their pay set by award only (15% of all employees). Award only employees comprised:

• 12% of all male employees and 17% of all female employees;
• 9% of all full-time employees and 25% of all part-time employees;
• 45% of employees in the Accommodation and food services industry and 30% of employees in the Administrative and support services industry; and
• 31% of Community and personal service workers and 27% of Labourers.

In May 2010, 39% of federal award only employees worked full-time whilst 61% worked part-time. This is in direct contrast to the full-time/part-time status of all employees in the federal jurisdiction, with 63% working on a full-time basis. Female award only employees were more likely work part-time (71%), while male award only employees were more likely to work full-time (54%).

By industry and occupation

Award only employees are heavily concentrated in certain industry divisions. In May 2010, half of all federal award only employees were employed in either the Accommodation and food services (21%), Retail trade (15%) or Health care and social assistance (14%) industries. In contrast, each of the following industries contained less than 1% of employees paid by award only: Information, media and telecommunications; Financial and insurance services; Electricity, gas, water and waste services; and Mining .



Award only employees were also more heavily concentrated in particular occupation groups. For example, 1 in 4 federal award only employees were Community and personal service workers (25%), and 1 in 5 were Labourers (21%), whereas only 1% were Managers.




EARNINGS

Award only employees are often viewed as minimum wage reliant. However, not all award only employees are lower paid, and not all lower paid employees are paid by award only. This section presents the distribution of employee earnings in the federal jurisdiction for those whose pay is set by award only with reference to other pay setting methods.

Distribution of total hourly cash earnings

There were 7 million non-managerial adult employees (excluding OMIEs) in the federal jurisdiction in May 2010. The distribution of hourly total cash earnings shows that 45% of these employees who had their pay set by award only earned less than $20 per hour, compared with 14% of those on a collective agreement and 19% of those who had an individual arrangement. At the higher end of the earnings distribution, less than 1% of award only employees earned more than $50 per hour compared with 8% of employees covered by a collective agreement and 11% of employees on an individual arrangement.



While the hourly earnings of award only employees in the federal jurisdiction are more heavily concentrated in the lower pay ranges than with the other methods of setting pay, they do not account for all lower paid employees. Non-managerial adult employees (excluding OMIEs) who earned under $20 an hour were just as likely to have their pay set through an individual arrangement (37%) as by award only (36%) compared to by collective agreement (27%). This suggests that not all lower paid employees receive a direct benefit from any increase in award wages from FWA, not withstanding efforts by employers to increase over award wages in order to remain competitive.


FURTHER INFORMATION

For further information, please contact Matt Dillon on Canberra (02) 6252 5183 or email <matt.dillon@abs.gov.au>.