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Individual Flexibility Agreements
Flexible Working Conditions
Flexible working arrangements can deliver benefits for both employers and employees, they can lead to greater job satisfaction, and help attract and retain skilled and valuable staff. The Fair Work Act 2009 (FW Act) enables workplace flexibility through the use of individual flexibility arrangements (IFAs).
The following information provides guidance as to IFAs, and items to take into consideration when entering into flexible arrangements with your employees.
What is an IFA?
IFAs allow for variations to modern awards or enterprise agreements in order to meet the genuine needs of employers and individual employees whilst protecting employee’s minimum conditions of employment, by ensuring the employee is ‘better off overall’.
How are IFAs made?
An employee or an employer can initiate a request for an IFA.
An employer who has initiated the making of an IFA must give the employee a written proposal, and take reasonable steps to ensure the employee understands the proposal (where employee has limited understanding of written English).
For an IFA to come into effect, the employee and employer must genuinely agree to an IFA, an IFA must be made without coercion or duress. An employer cannot ask a prospective employee to agree to an IFA as a condition of employment.
It is the employer’s responsibility to ensure that the employee is better off overall under an IFA, as compared to their applicable modern award or enterprise agreement. The employer’s ‘better off overall’ assessment will usually involve comparing the employee’s benefits under the IFA with the benefits under the applicable award or enterprise agreement.
What terms of a modern award can be varied?
IFA terms of modern awards allow employers and employees to vary:
- arrangements for when work is performed (such as working hours)
- overtime rates
- penalty rates
- allowances or
- annual leave loading.
What terms of an enterprise agreement can be varied?
An IFA made under an enterprise agreement can only vary the matters set out in the flexibility term of the agreement which will be determined when the agreement is made. It is important to note that an IFA cannot contain unlawful terms, such as terms that may be discriminatory.
What must an IFA include?
An IFA must be in writing and state the following:
- name the employer and the employee
- be signed by the employer and the employee (and, if the employee is under 18 years of age, the employee’s parent or guardian)
- state each term of the award that the employer and the individual employee have agreed to vary
- detail how the term has been varied
- state the date the agreement commences to operate and
- detail how the agreement results in the employee being “better off overall”.
Although the Fair Work Commission does not need to formally approve the IFA, employers need to ensure that the IFA meets all of the above requirements. If the employer does not do this, the employee may be able to take action for compensation and penalties may apply.
Once an IFA is made the employer should retain a copy as a time and wage record, and give the employee a copy.
How is an IFA terminated?
An IFA can generally be terminated:
- at any time by written agreement between the employer and the employee or
- by the employer or employee giving 13 weeks’ written notice to the other party (reduced to 4 weeks if the agreement was entered into before the first full pay period starting on or after 4 December 2013).
An agreement terminated ceases to have effect at the end of the period of notice.
Examples of varied terms under an IFA
An employer employs under the Award which provides for a daily fares allowance of $20.32. For Employee A, who travels to work 5 days per week and uses his own vehicle, this amounts to $101.60 per week.
Employee A and his employer agree to enter into an IFA which will increase the employee’s hourly rate by $3.00 per hour on the basis that the daily fares allowance will no longer be payable. Based on a 38 hour week, this equates to $114 per week. As this amount is higher than the value of the daily fares allowance, the employee is ‘better off overall’.
Employee B is engaged under an award which provides that 17.5% annual leave loading is payable on annual leave payments. The employee’s base rate for annual leave calculations is $26.87 per hour or $1021.06 weekly. The monetary value of annual leave loading to Employee B annually is $714.74.
The employer and Employee B agree to an IFA which will increase the employee’s wage by 45c per hour on the condition that annual leave loading will not be payable. This hourly increase provides an additional benefit of $889.20 per year. This is higher than the annual monetary benefit of $714.74 provided by annual leave loading and so the employee is ‘better off overall’.
An employer employs under the Building and Construction General On-site Award 2020 (Award) which provides that ordinary hours are 38 per week, averaged over a 20 day 4 week cycle with an RDO system in place, worked between 7.00am and 6.00pm Monday to Friday.
Per the Award, ordinary working hours will be 8 hours in duration each day, of which 0.4 of one hour of each day worked will accrue towards a RDO and 7.6 hours will be paid. An employee will therefore accrue 7.6 hours towards a RDO each 19 days of ordinary hours worked.
Flexible start time
Employee C has a school aged child that needs to be picked up from school at 3.00pm each day. Employee C asks the employer if he can start earlier than the normal 7.00am start each day, so he can finish earlier in time for school pick up. The usual finish time is 3.30pm.
The employer agrees to this change and offers a 6.00am start with a 2.30pm finish in an IFA. The employee may be considered ‘better off overall’ given their personal circumstances.
Not use RDO system
The employer runs a small business making an RDO system difficult to implement.
Under the Award, where a day that is meant to be an RDO is worked, Saturday penalty rates apply that day, and the RDO continues to be accrued. After discussions with Employee D, it turns out that he would prefer to be paid the 8 hours each day, rather than 0.4 unpaid, that would usually accrue to a paid day off (RDO).
The employer and Employee D may agree to ‘cash out’ the RDO and pay the 8 hours worked via an IFA, rather than accruing an RDO. The employer and Employee A agree to a higher rate for each hour worked making the employee ‘better off overall’ compared to the Award.
Other flexibilities
An employer and employee may agree to pay a higher flat rate to incorporate other allowances that may be payable under an award, such as meal allowances, in the event overtime is often worked.
There may also be agreement to pay a higher flat rate for reasonable additional hours worked outside the ordinary hours, in lieu of overtime rates or penalty rates for weekend work. Under an IFA the employee needs to be better off overall when compared to the relevant award, therefore a sufficiently higher rate than the award rate would need to be offered each hour to offset award overtime and penalty rates.
To find out more, contact HIA's Contracts and Compliance team
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