Labor Moves to Lock in Penalty and Overtime Protections for Low-Paid Workers

In a move that could permanently seal one of the most controversial wage loopholes in Australian industrial relations, the Albanese Government has introduced legislation to stop the erosion of penalty rates and overtime entitlements for modern award employees.

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025, tabled by Workplace Relations Minister Amanda Rishworth, aims to ensure that additional pay for working nights, weekends, public holidays or overtime cannot be traded away or diluted through so-called “rolled-up” rates.

Rishworth told Parliament that the Bill creates a new Section 135A in the Fair Work Act, enshrining a guiding principle that the Fair Work Commission must not approve or include modern award terms that would reduce or substitute the penalty or overtime rates employees are entitled to. The principle is simple: what workers earn for working outside standard hours should not be bundled into a single hourly rate unless it genuinely leaves them better off.

Labor Moves to Lock in Penalty and Overtime Protections for Low-Paid Workers

Why This Matters

Recent attempts by employers in the retail, banking and clerical sectors to use “rolled-up” pay structures prompted government action. These proposals, currently before the Fair Work Commission, would allow employers to effectively absorb penalty and overtime pay into a single flat rate—often to the detriment of low-paid workers who rely on those extra rates to make ends meet.

The Government has already intervened in one such retail case, arguing that allowing such changes would violate the principle that wages for the lowest paid should never go backwards.

This Bill seeks to put an end to those tactics. It would make it unlawful for the Commission to approve changes that would have the practical effect of reducing overtime and penalty payments under modern awards.

Simplicity, Not Complexity

Importantly, the legislation isn’t designed to micromanage industrial relations or interfere with the Commission’s independence. Rishworth emphasised that the Commission’s ability to manage award variations, resolve ambiguities, and consider applications for change remains intact. The new rule operates as a high-level principle—a red line that ensures core entitlements can’t be bargained away through loopholes.

The principle won't apply retrospectively, nor will it affect existing individual employment contracts, flexibility agreements, or enterprise bargaining agreements. Employers and unions can still negotiate flexibly under enterprise bargaining, provided workers end up “better off overall”—a safeguard that already applies.

A Win for Award-Dependent Workers

For employees who depend on modern awards—especially those in casual or lower-paid sectors—this Bill could be a game-changer. The legislation reinforces the principle that modern awards serve as a floor, not a ceiling. It’s a baseline that protects workers from exploitation and underpayment through creative payroll strategies.

As outlined in the Bill’s explanatory memorandum, the Fair Work Commission must consider additional pay for working unsocial hours or overtime as part of its role in maintaining a fair and relevant safety net. The new provision closes loopholes that employers have tried to exploit in ways that undermine this safety net.

What This Means for Workers and Employers

For workers: Your penalty rates and overtime pay are no longer at the mercy of clever contracts or Commission discretion under award reviews. This is a clear win for fairness and predictability in pay.

For employers: If you're looking to simplify pay structures, you’ll still be able to—but not by reducing award entitlements. Enterprise bargaining remains the place to negotiate productivity-based changes, not the safety net.

At 1800NOWINNOFEE, we believe that clarity in workplace law is essential—especially for workers who are often vulnerable to cost-cutting tactics disguised as "flexibility." This new legislation strengthens the award system and sends a powerful message: penalty and overtime rates are not optional extras—they’re essential entitlements.

If you’re unsure whether your pay reflects your award rights, or you’ve been told your penalty rates are being “rolled in,” give us a call. Our no-win-no-fee employment experts are ready to help you make sense of your entitlements and fight for what you’re owed.