An Individual Flexibility Agreement is an employment contract between a single employer and employee that modifies the application of a modern award or enterprise agreement.
The Australian federal, state and territory governments have expanded their concept of employee protection to do away with some of the matters introduced under the discredited Work Choices scheme. There has been a process of modernising awards, and ‘modern awards’ now cover specific areas.
All contracts of employment, whether or not they are based on an award, have to cover National Employment Standards. You have flexibility in your approach both to the award conditions and the National Employment Standards. An employer can negotiate almost anything with an individual employee as long as it can be demonstrated that the employee is better off overall as a result of the bargain.
An ‘individual flexibility agreement’ is a useful tool which lets an individual employee and their employer ‘customise’ the terms of the employee’s engagement. The aim is to modify the terms of an enterprise agreement or an award to suit the parties’ needs.
The new laws enable employers and employees to reach an ‘individual flexibility agreement’ covering a range of matters. Although the agreement between a single employer and employee will modify the application of a modern award or enterprise agreement, the rule is that it must satisfy the ‘better off overall test’.
This type of agreement is not the same as an enterprise agreement, which is an enforceable document that covers the employment conditions of a group of employees and their employer. Enterprise agreements can include single or multi-enterprise agreements and must meet a number of tests before they can be approved by Fair Work Australia.
Under the new system, properly prepared employment contracts will assist employers implement some flexibility in work arrangements with their employees. The areas that could be subject to an agreement include averaging of maximum working hours over a period of several weeks; overtime, penalty rates and leave loading; annualised salaries; arrangements for time off in lieu of overtime; arrangements for working ordinary hours.
The ‘better off overall test’
Modern awards allow individual agreement to be reached about a range of matters, some of which have previously only been variable by formal registered collective or individual agreement.
The key requirement now is that the variation to the award condition must leave the employee better off overall. The ‘better off overall test’ means that an employer cannot breach an employee’s safety net. Agreement must be genuine and employers must take care that there is no implication that the employee was pressured into signing a flexibility agreement.
Variable matters subject to the ‘better off overall test’ include:
- Arrangements for when work is performed eg hours of work and rostering;
- notice periods, rest breaks and variations to working hours;
- Overtime rates;
- Penalty rates;
- Annualised wage arrangements;
- Leave, leave loadings and arrangements for taking leave;
- Superannuation and salary sacrificing; and
- Procedures for consultation, representation and dispute resolution (which basically have to be fair but you can include specified persons or bodies as arbitrators eg priests).
Employers and employees can also agree to substitute public holidays for an alternative day off for the employee. You should include a negotiated figure keeping in mind the better off overall rule.
Where an employee is considered ‘high paid’, the employer can exclude the employee from award coverage by giving an undertaking guaranteeing that the employee’s total remuneration will exceed the limit set by law. This is $108,000 per year as of March 2010. This figure will be indexed in August each year. In practice, this provision will only apply to a limited number of award covered employees.
Ensure your employees are aware of their employment status and avoid any misunderstanding by defining each parties rights with a Compliant Individual Flexibility Employment Agreement.