Fair Work Act Update: New Protections for Penalty and Overtime Rates

Introduction

The Australian Government has passed the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025 (Cth), with its changes coming into effect from 30 August 2025.

The overarching impact of this new Act is that it makes amendments to the current Fair Work Act 2009 (Cth) to ensure that the penalty and overtime rates prescribed in modern awards are protected and cannot be substituted with alternative arrangements.

This only applies to modern awards and does not change how enterprise agreements are negotiated and approved by the Fair Work Commission.

This article will explore what these changes are and the implications for employers.

Fair Work Commission Making, Varying and Revoking Modern Awards

While the Fair Work Commission has powers to make, vary and revoke modern awards, under this amendment, they will not be permitted to make, vary or revoke such awards in a manner that would reduce penalty or overtime rates for employees.

Such change aims to make sure that employees who are covered by a modern award receive adequate payment for working outside of normal working hours such as on weekends, evenings or public holidays.

Additionally, the Fair Work Commission when making, varying or revoking modern awards cannot include terms that would substitute or reduce the penalty or overtime rates that employees would receive. An example of this would be where the Fair Work Commission previously allowed employers to combine penalty and overtime rates into a single pay rate to reduce the administrative burden for the employer. Now the Fair Work Commission cannot do so where even one employee would be worse off as a result of the substitution and/or change.

Impact on Employers

Interestingly, these changes do not impose any additional requirements on employers, do not impact the operation of individual flexibility arrangements or the existing legal position on annualised wage arrangements in awards or contracts.

Rather the changes will simply impact how the Fair Work Commission deals with award changes, not how individual businesses and employers reach agreements on pay rates with their employees.

However, employers must remain vigilant in ensuring that they comply with their obligations under relevant modern awards.

Employers should ensure that:

1. Employees are correctly classified under the correct modern award based on their role;
2. Employees are paid correctly in accordance with the relevant modern award, including meeting the minimum entitlements applicable; and
3. Any ‘rolled up’ or ‘loaded’ rate arrangements (i.e. where penalty and overtime rates are combined into a single pay rate for convenience) are compliant with the applicable modern award and that the arrangement does not make even one employee worse off, depending on the modern award’s relevant requirement.

Conclusion

This new Act intends to protect the right of employees to be paid penalty and overtime rates for working outside of normal working hours and limits the ability of the Fair Work Commission to make changes that could negatively impact employees in this regard.

For employers, while there are no additional requirements placed on them, they should review the current arrangements they have in place to ensure that their employees are receiving their minimum entitlements under any applicable modern award.

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