What the Fair Work Amendment Means for Australian Employers
In August 2025, the Australian Parliament passed the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025, amending the Fair Work Act 2009. The amendment requires the Fair Work Commission to ensure that penalty and overtime rates are not reduced through award variations and that award terms do not substitute those entitlements with alternative arrangements that would leave employees worse off overall.
Importantly, the amendment does not create new penalty rates. Rather, it strengthens the protection of existing award-based entitlements. The provisions apply to modern awards rather than directly to enterprise agreements. However, enterprise agreements must still satisfy the Better Off Overall Test, meaning employees must be better off overall compared with the applicable modern award, which indirectly reinforces these standards.
The reform has practical implications for employers in 2026. Applications to vary modern awards will now face closer scrutiny, as the Fair Work Commission must consider whether any proposed changes would result in employees being financially disadvantaged.
To manage these risks, employers should regularly review their award compliance arrangements and payroll systems to ensure penalty and overtime rates are being calculated accurately. Businesses relying on annualised salary arrangements should assess whether those salaries adequately compensate employees for the hours they work in practice. Lastly, employers considering applications to vary modern awards should also obtain appropriate legal advice before proceeding.
As an employer, it is important to ensure that your pay structures comply with the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025. Contact us for tailored advice on penalty rate compliance, modern award obligations, and workplace risk management in 2026.