Albanese Government introduces penalty rates Bill; Greens push for 4-day work week
On 24 July 2025, the Government presented to Parliament its proposed legislation to protect penalty and overtime rates in Modern Awards to counteract employer-driven applications currently before the Fair Work Commission (FWC), which seek to permit penalty rates to be traded away under a salary-type arrangements in select awards.
Workplace Relations Minister, Amanda Rishworth, explained the Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 (the Bill) introduces a new principle to govern how the FWC exercises its powers to make, vary or revoke modern awards requiring the FWC to “ensure the specified penalty rate or overtime rate in modern awards that employees are entitled to receive are not reduced, and modern awards do not include terms that substitute employees’ entitlements to receive penalty rates or overtime rates, where those terms would have had the effect of reducing that additional remuneration employees would otherwise receive”.
The Bill has been designed to target a style of salary arrangement, also known as ‘salary absorption’, which risks leaving employees worse off than if they received the award minimum conditions without variation. Salary absorption clauses are rare in the Modern Awards – the Registered & Licensed Clubs Award 2020 providing an example which contains two different options for salary absorption – and generally stipulate that specified elements of the award automatically cease to apply where an employee is being paid a designated amount (e.g. 20% or 50%) above the relevant award rate. Salary absorption provisions are distinct from annualised salary arrangements (which are more commonly found in Modern Awards and were revised and strengthened by the FWC years ago) which contain safety net protections that expressly prevent a negotiated above-award arrangement from disadvantaging the employee against the award minimums. Annualised salary clauses are constructed in such a way that an employee is entitled to be back paid at the earliest opportunity where the salary arrangement results in them being paid less in a pay period than what they would have received had the award been applied without variation.
Assuming the Bill secures passage, salary absorption clauses within the Modern Awards will either become extinct or require significant re-drafting such that the likely result will be a provision reminiscent of an annualised salary arrangement.
Minister Rishworth argued that the proposed legislation would prevent current applications to vary the retail, clerical and banking awards to roll up penalties “into a single rate of pay that leaves employees worse off” from being able to be approved by the FWC. She went on to emphasise that the legislation “does not impact individual employment contracts”, “does not apply to individual flexibility agreements” and “will not affect the enterprise bargaining framework, which is the right place for employers to directly negotiate with employees and their unions to achieve flexible and productive gains with appropriate safeguards in place, such as the better off overall test”.
Even if signed into law, the legislation is likely to have limited impact, given the scarcity of salary absorption clauses in the Modern Awards, and the fact there will be no retrospectivity to any changes.
Greens’ support possibly required
If the Coalition opposes the Bill, the Albanese Government will require the support of the Greens in the Senate, which potentially allows the Greens to more aggressively pursue their desired improvements to Australian workers’ rights.
Prior to the election, the party outlined priority areas of its IR Agenda including the doubling of paid parental leave to 52 weeks, implementation of a four-day working week, and the introduction of 12 days’ paid reproductive leave as a minimum standard.
In pursuit of a four-day work week, Senator Barbara Pocock has previously identified the intention to “initiate a series of national trials in different industries where workers work 80% of their normal hours while maintaining 100% of pay” with the Greens being responsible for establishing a dedicated institute (at a cost of $10 million) to coordinate the trials. The party would also support a four-day work week test case through the Fair Work Commission, aiming to reduce working hours with no loss of pay.
Whilst there is broad support amongst business for condensed working weeks – wherein full-time employees can agree to arrange their ordinary hours to be worked across fewer than five days of the week – the concept of employees working 20% less without a corresponding reduction in pay has little traction with employers. This was recently reinforced by the ABC’s 7.30 program, which referenced Workplace Relations Minister, Amanda Rishworth, confirming the Government had no plans to pursue the four-day work week as standard.