When tested against a proposed enterprise agreement, the BOOT is not applied as a line-by-line analysis. It is a global test requiring consideration of advantages and disadvantages to award covered employees and prospective award covered employees. The question posed by the BOOT is not whether each employee is better off under the agreement compared to their particular existing working arrangements, but whether they are better off overall if the agreement is applied rather than the relevant modern award.
The Better Off Overall Test applies equally to all employees ‘covered’ by the proposed collective agreement, including those who may be subject to the high-income threshold. Although the Test requires each award-covered employee to be better off, the Fair Work Commission may ‘assume’ that each employee within a designated class of employees are better off if the agreement passes the Test when applied to that class.
The phrase “class of employees” is intended to refer to a group of employees covered by the enterprise agreement who share common characteristics that enable them to be treated as a group when the Fair Work Commission applies the Better Off Overall Test. An example is where the employees are in the same classification, grade or job level, or with the same working patterns.
The Better Off Overall Test allows award conditions (but not National Employment Standards’ conditions) to be traded off or excluded as long as the total remuneration and/or benefits received by the employee leave them better off than if the conditions remained the same. The application of the Test therefore, requires the identification of the terms of an agreement which are more beneficial to employees when compared to the relevant modern award, and the terms of an agreement which are less beneficial and then an overall assessment of whether an employee would be better off under the agreement.
An agreement may pass the test even if some award benefits have been reduced, as long as overall those reductions are more than offset by the benefits of the Agreement.
Which modern award?
Before the Better Off Overall Test can be conducted, it is necessary to correctly identify the modern award that covers the employees. In determining the most appropriate modern award, this is generally determined by:
· the award which contains the classifications most appropriate to the work performed, and
· the environment in which the work is normally performed
Identifying a modern award
Modern awards contain interaction rules which govern situations where more than one award may apply. The correct modern award can be determined by comparing the duties performed by the employees to the classification definitions in the modern award.
The Fair Work Commission is then required to consider the coverage of the award at the test time and to compare the terms of the agreement to the employees it covers at that time.
The Commission is required to examine the major, substantial, or principal aspect of the work performed by the employee at test time, including the amount of time spent performing particular tasks, the circumstances of the employment and what the employee was employed to do. The question is one of fact to be determined by reference to the duties being performed in the position, rather than the title.
What if two or more awards apply?
Multiple modern awards may need to be used to apply the Better Off Overall Test where different awards apply to different classes of employees to be covered by the agreement. The awards identified as applicable would be those that would cover the employer, and the duties performed by the employees, to be covered by the proposed agreement.
The Fair Work Act provides for flexibility by allowing employers and employees to have multiple instruments covering different or even the same operations. The terms and conditions that apply to work for employees covered by the agreement are dependent on the scope and operation of the relevant instruments.
Loaded rates of pay
An agreement can include loaded rates of pay which compensates for entitlements due to the employee, provided for the comparative instrument(s), which is generally the applicable modern award and/or awards. The rate of pay in the agreement is increased to compensate for the removal of award entitlements that would no longer apply.
The hourly rate would also need to consider the work arrangements of an employee. Shift work or work performed at times that attract a penalty under the award (night work or weekend work) would need to be considered when determining the loaded rate.
Entitlements that can be incorporated into a loaded rate of pay include:
· annual leave loading
· shift work allowances
· weekend penalties
· reasonable additional hours
· overtime – although the average amount of overtime usually worked by an employee would need to be considered
· work related allowances
State and territory legislation
An enterprise agreement will fail the Better Off Overall Test if it contravenes the applicable state or territory employment statute. For example, an agreement would fail the Test if it provided for the cashing out of long service leave in a state or territory whose relevant law prohibited cashing out, eg New South and Victoria, whereas cashing out of long service leave for South Australian employees would pass the Test as this is allowed by the relevant South Australian long service leave legislation.
A proposed agreement that provides that employees may elect to work at times when additional amounts would otherwise be payable under the agreement, and to be paid at the basic hourly rate of pay for working such hours, would not pass the Better Off Overall Test when the terms of a relevant reference instrument provide for payment for ‘preferred hours’ at overtime or penalty rates, and/or the agreement does not provide more beneficial terms and conditions.
For assistance applying the Better Off Overall Test or for any HR matter, please contact us at [email protected] or 1300 720 004.
Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors, such as government legislation changes, may not be up to date at the time of reading. It is not legal advice and should not be treated as such.