Can an employer offset award obligations against the rate of pay paid to an employee? Master Plumbers Senior Workplace Relations Adviser Phil Eberhard uncovers some situations where this can occur.

There has long been an argument about whether, or not, an employer can offset certain payments provided under the Plumbing and
Fire Sprinklers Award 2010 (PFS Award), or any other modern award for that matter, against the salary paid to an employee.

To put it another way, is the employer able to say to a prospective employee that they will pay them let’s say $38.00 per hour as an “all-up rate”, but they will not pay the fares allowance, the travel allowance and/or annual leave loading provided under the PFS Award? The answer is “yes”.

The practical solution

The minimum rate payable to a registered plumber is $24.38 per hour. In certain circumstances, a registered plumber would be entitled to a Fares Allowance of $10.80 per day ($1.43 per hour) and a Travel Allowance of $6.10 per day ($0.81 per hour).

In addition, under the PFS Award, a registered plumber is entitled to an annual leave loading of 17.5%.

Based on the minimum rate payable to a registered plumber ($24.38 per hour) the annual leave loading equals (approximately) $0.33 per hour ($24.38 x 4, which is the minimum annual leave entitlement) x 38 = $3706 x 17.5% = $650.00 divided by (52 x 38 = 1976) = $0.33 per hour.

Therefore, the minimum hourly rate payable under the above situation / scenario is:
Minimum base hourly rate $24.38
Fares allowance (hourly) $1.43
Travel allowance (hourly) $0.81
Annual leave loading (hourly) $0.33
Total $26.95

In this situation, an employer that pays the plumber $38.00 per hour would be entitled to say to that plumber that the $38.00 would include the fares allowance payable under the PFS Award, the travel allowance payable under the PFS Award and the annual leave loading payable under the PFS Award. This is because the rate payable to that plumber is well in excess of the combined amounts payable under the PFS Award ($38.00 per hour vs $26.95 per hour).

However, if an employer was only paying an employee $26.50 per hour and they tried to offset the above payments into that hourly rate, then they would be in breach of the PFS Award, as the rate paid is less than the combined offset amounts.

As is the case with any industrial relations / employee relations situation, there are a number of conditions that attach to this example.

The legal outcome

There are a number of decisions that confirm that an employer can offset certain payments provided under an award against the hourly rates/salary paid to an employee. Some of those decisions include:

  • John Ubaldo Poletti v Ernest Ecob ([1989] FCA 492; 31 IR 321 (1 December 1989); and
  • Maslen v Core Drilling Services Pty Ltd & Anor ([2013] FCCA 460 (24 June 2013); and
  • Simone Stewart v Next Residential PtyLtd (2016 WAIRC 00756)

The following principles can be ascertained from the decisions:

1 That it is imperative that the intention to offset be clearly articulated in the letter of offer/contract of employment, because an employer will be unable to meet its’ award obligations by offsetting award obligations against an over award payment, unless there is specific agreement with the employee about what the over award payments are compensating the employee for; and

2 That once appropriated against a certain item, the over award payment cannot be relied on in satisfaction of any other claim; and

3 That (because of principle 1 and 2 above) the contract of employment cannot state that the over award payment is in substitution for “any award provision/entitlements ” or “all award provisions/ entitlements” that may be payable under the award; and

4 That (because of principle 1, 2 and 3) the requirement for specificity is crucial because an employee must be able to compare his or her payment to award entitlements so that they can be properly considered and assess the over award payment against the award bligation/s; and

5 That there is a limitation as to what can be offset; a provision that is proposed to be offset must have a monetary component attached to it.

If you cannot quantify an amount for that provision you cannot offset that provision; for example, you couldn’t offset a meal break (because you cannot quantify an amount for that provision).

What Master Plumbers Victoria members get

As part of its service to members Master Plumbers provides a variety of letters of offer/contracts of employment to members. The more detailed letter of offer/ contract of employment contains a clause that specifies that certain payments payable under the PFS Award have been incorporated into the hourly rate payable under the letter of offer/contract of employment and are therefore not payable to that employee.

This would then ensure that the employer follows the offsetting principles and just as importantly the employee knows and understands what it is they are being paid for (or not being paid, as that particular item/s is included in the hourly rate). If Members require help drafting a letter of offer/contract of employment, contact Phil Eberhard, on 03 9321 0720 or 0425 790 722, or email [email protected]