I have acted for several businesses that have had claims made against them from an employee for under payment including penalties, overtime and leave loading. In each of these matters, the businesses were paying the employee above the award rate and in some cases were also paying the employee a “bonus”.

However, as our clients did not have Individual Flexibility Agreements (“IFA”) in place to vary the requirements under the award to make a “loaded” single rate to their employees which rolled in overtime rates, penalty rates, allowances, leave loading and/or hours, the businesses were subject to claims from their former employees for under payment.

While the businesses thought the employees were being “opportunistic” they were legally entitled to make the claims. Without implementing properly drafted IFAs these businesses have been put in a position where they have had to either defend a claim made against them for under payment of entitlements or negotiate a settlement with their employees.

In most cases, our clients have decided to settle the matter as this was a commercially viable decision for their business. These are good examples of the importance of implementing IFAs in your business and the risks associated with not paying your employees the correct entitlements.

What you need to know

The Fair Work Act 2009 (the “Act”) seeks to promote workplace flexibility through the use of IFAs. IFAs allow for variations to modern awards or enterprise agreements by implementing a flexible term in order to meet the genuine needs of employers and individual employees while ensuring minimum entitlements and protections are not undermined.

The Act ensures these arrangements do not undermine minimum employee entitlements by requiring the employer to ensure the employee covered by the IFA is better off overall on the IFA compared to the modern award or enterprise agreement that it varies.

An IFA has effect as if it were actually a term of a modern award or enterprise agreement and can be enforced. IFAs can vary modern awards in relation to the following:

Arrangements for when work is performed such as working hours
Overtime rates
Penalty rates
Leave loading
As IFAs do not need to be approved by the Fair Work Commission, it is the employer’s responsibility to ensure that the IFA is made correctly, and meets all of the requirements of the Act.