Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025: What It Means for Australian Workers

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025 received Royal Assent on 29 August 2025. It amends the Fair Work Act 2009 to permanently prevent the Fair Work Commission from reducing or substituting penalty rates and overtime rates in modern awards — protecting the weekend, public holiday, and after-hours pay of approximately 2.6 million Australian workers covered by federal modern awards.

Quick answer: The Act is now law (Royal Assent 29 August 2025, commenced 30 August 2025). It means the Fair Work Commission cannot reduce or roll up penalty rates or overtime rates in modern awards, even when reviewing or varying those awards. It does not apply to enterprise agreements, individual flexibility arrangements, or private contracts.

Use the Dolaro Overtime Pay Calculator to calculate your exact penalty rate and overtime entitlements under your current award.

What the Act Does

The Act inserts a new section 135A into the Fair Work Act 2009. This section establishes a binding principle that the Fair Work Commission must apply whenever it exercises its powers to make, vary, or revoke a modern award.

The principle has two limbs:

1. Penalty and overtime rates cannot be reduced.
The Commission cannot vary a modern award in a way that reduces the penalty rate or overtime rate any employee is entitled to. If a rate is currently 200% on Sundays under an award, the Commission cannot change it to 175% — even if an employer applies for such a variation on grounds of business viability or modernisation.

2. Penalty and overtime rates cannot be substituted with alternative entitlements that leave workers worse off.
This limb targets "roll-up" arrangements — where an employer or an award clause combines penalty rates, overtime rates, and base pay into a single higher flat rate, in a way that means some or all employees receive less additional remuneration than they would have received under the separate rate structure. The Act prohibits the Commission from including such terms in modern awards where the effect is that any employee would receive less.

The second limb is the more technically significant one. It directly responds to the risk — raised by unions and the Albanese Government — that modern award reviews could produce composite or annualised rate structures that superficially appear equivalent to existing penalty rates but leave individual employees worse off depending on their actual hours and roster.

Commencement

The Act commenced on 30 August 2025 — the day after Royal Assent on 29 August 2025.

The new section 135A principle applies to all exercises of the Commission's powers under Part 2-3 of the Fair Work Act on or after commencement — including applications to make, vary, or revoke a modern award that were already on foot (i.e., lodged before 30 August 2025 but not yet decided). Pending applications were not grandfathered out of the new requirement.

Background: Why This Legislation Was Introduced

The Act implements an election commitment made by the Albanese Labor Government ahead of the 2025 federal election. The legislative context goes back further — to the 2017 Fair Work Commission decision to reduce Sunday and public holiday penalty rates in the Retail, Hospitality, Fast Food, Pharmacy, and Restaurant awards, which was upheld by the Full Federal Court.

That decision, and the ongoing possibility that future award reviews could produce similar outcomes, drove the policy rationale for permanent legislative protection. The Government's stated concern was that without legislative protection, the FWC retained discretion — as part of its ongoing award modernisation and review functions — to reduce or restructure penalty rates in a way that reduced take-home pay, even if employees remained technically above the statutory minimum wage.

The Bill was introduced to the House of Representatives on 24 July 2025 and passed both houses on 28 August 2025.

What the Act Does NOT Cover

Understanding the limits of the Act is as important as understanding what it does. Several significant exclusions apply.

Enterprise Agreements

The Act does not apply to enterprise agreements. Enterprise agreements are negotiated separately from modern awards under Part 2-4 of the Fair Work Act. The new section 135A only constrains the Commission's powers under Part 2-3 (modern awards). An enterprise agreement can still include annualised salary arrangements or other structures that combine penalty rates and overtime into a composite rate — subject to the existing Better Off Overall Test (BOOT), which requires that employees be better off overall under the agreement than under the award.

The BOOT already provides a floor for enterprise agreements. The Act does not change the BOOT — it simply adds an additional, separate constraint on what the Commission can include in modern awards themselves.

Individual Flexibility Arrangements (IFAs)

An employer and employee can still agree to an Individual Flexibility Arrangement (IFA) under section 202 of the Fair Work Act that varies the terms of a modern award — including, in some circumstances, varying penalty rate arrangements. The Act does not restrict IFAs. The existing IFA safeguard (the employee must be better off overall) continues to apply.

Private Employment Contracts

The Act does not affect private employment contracts that provide for rates above award minimums. Where an employer pays above-award rates and structures those rates differently from the award, the Act is not engaged — the award minimum still cannot be reduced, but above-award arrangements are between the employer and employee.

Already-Completed Award Variations

The Act operates prospectively for Commission decisions made on or after 30 August 2025. Award variations that were decided before commencement are not unwound by the Act. However, any pending applications not yet decided as at 30 August 2025 are subject to the new principle.

What It Means for Workers Covered by Modern Awards

If you are one of the approximately 2.6 million workers covered by a federal modern award — in retail, hospitality, fast food, healthcare, construction, clerical work, and many other industries — the practical effect of the Act is:

Your current penalty rates are locked in at the award level. The Fair Work Commission cannot, in a future award review, reduce your Sunday penalty rate, your public holiday rate, or your overtime rate. Whatever the award currently provides is now the permanent minimum — it can go up (the Commission retains power to increase rates) but cannot go down.

"Roll-up" schemes cannot be built into modern awards. Employers and industry groups cannot successfully lobby the Commission to restructure awards so that penalty rates are combined into a flat composite rate in a way that leaves any employee worse off. The Commission must ensure no employee loses additional remuneration as a result of any such restructure in an award.

Pending award reviews proceed with the new constraint. Any ongoing review of a modern award — including the Retail Award, Hospitality Award, and others — must now be conducted under section 135A. Applications for rate reductions lodged before 30 August 2025 but not yet determined are subject to the new rule.

What It Means for Employers

For employers, the Act forecloses a specific avenue — award-based penalty rate restructuring — that some employer groups had pursued through the Commission's award review processes.

The key practical implications:

Award compliance obligations are unchanged. If your award currently requires 200% for Sunday work, it still does. The Act doesn't change that — it prevents it from being changed downward.
Enterprise agreement bargaining is unaffected. You can still negotiate enterprise agreements that structure remuneration differently from the award, subject to the BOOT.
IFAs remain available. Individual flexibility arrangements remain a mechanism for tailoring arrangements with specific employees, subject to existing safeguards.
Cost modelling for award-dependent businesses remains based on current rates. The prospect of future award rate reductions as a cost relief mechanism is now closed off. Planning assumptions should reflect current award rates as permanent minimums.

The Coalition's Position and Stakeholder Views

The Act passed with some opposition. The Coalition raised several concerns during parliamentary debate, including:

The Act does not apply to enterprise agreements, creating an asymmetry where award employees are protected but enterprise agreement employees — who make up a larger share of the workforce — are not.
The Law Council of Australia submitted that the Bill's explanatory memorandum overstated the problem, arguing that existing mechanisms already prevented true "roll-up" schemes that left employees worse off — because the existing award framework already required employees not be paid less than their award entitlements.
Some employer groups argued the Act reduces the Commission's flexibility to modernise awards in ways that could benefit both employers and employees.

The Government's response was that the legislative protection was necessary because the Commission's existing discretion had previously been used to reduce penalty rates (the 2017 decision), and only legislative protection could prevent that outcome recurring.

How to Find Your Current Penalty and Overtime Rates

The Act protects your existing rates — to find out what those rates are under your specific award:

Identify your modern award. Use the Fair Work Ombudsman's Find My Award tool.
Check the penalty rates and overtime clause. Awards are available in full on the Fair Work Commission's website at fwc.gov.au.
Use the Pay and Conditions Tool (PACT). The Fair Work Ombudsman's PACT calculator at fairwork.gov.au calculates your correct pay including penalty rates for any day and time.
Calculate your overtime. Use the Dolaro Overtime Pay Calculator to calculate your gross pay for any combination of ordinary and overtime hours.

Frequently Asked Questions

What is the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025?

It is a federal law that amends the Fair Work Act 2009 to prevent the Fair Work Commission from reducing or substituting penalty rates and overtime rates in modern awards. It received Royal Assent on 29 August 2025 and commenced on 30 August 2025. The Act protects the weekend, public holiday, and after-hours pay of approximately 2.6 million Australian workers covered by federal modern awards.

When did the Fair Work Amendment (Protecting Penalty and Overtime Rates) Act 2025 commence?

The Act commenced on 30 August 2025 — the day after Royal Assent on 29 August 2025. The new principle in section 135A applies to all exercises of the Fair Work Commission's modern award powers on or after 30 August 2025, including pending applications not yet decided as at that date.

What does the Act protect against?

The Act protects against two things: (1) the Fair Work Commission reducing penalty or overtime rates in modern awards — for example, reducing Sunday rates from 200% to 175%; and (2) the Commission including "roll-up" terms in awards that combine penalty rates and overtime into a composite flat rate in a way that leaves any individual employee with less additional remuneration than they would have received under the separate rate structure.

Does the Act apply to enterprise agreements?

No. The Act only constrains the Fair Work Commission's powers under Part 2-3 of the Fair Work Act (modern awards). Enterprise agreements are made under Part 2-4 and are not affected by section 135A. Enterprise agreements must still pass the Better Off Overall Test (BOOT), which requires employees to be better off overall compared to the relevant award — but the Act itself does not impose additional requirements on enterprise agreement content.

Does the Act affect my Individual Flexibility Arrangement (IFA)?

No. IFAs are separate arrangements made between an employer and individual employee under section 202 of the Fair Work Act. The Act does not restrict what can be agreed in an IFA, subject to the existing requirement that the employee be better off overall than under the award.

Does the Act increase my penalty rates?

No. The Act prevents penalty and overtime rates from being reduced — it does not increase them. Your current award rates remain your entitlement. If you believe you are underpaid relative to your award, contact the Fair Work Ombudsman on 13 13 94.

Which workers are protected by the Act?

Workers covered by federal modern awards — approximately 2.6 million Australians in industries including retail, hospitality, fast food, healthcare, construction, clerical and administrative work, cleaning, security, and many others. Workers covered by enterprise agreements rather than modern awards are not directly protected by section 135A, though the BOOT continues to apply to their agreements.

Does the Act cover WA state system employees?

No. The Act amends the federal Fair Work Act 2009. WA state system employees — covered by the WA Industrial Relations Act 1979 and WA state awards — are governed by a separate system. Their penalty and overtime rate protections come from WA state awards administered by the Western Australian Industrial Relations Commission (WAIRC), not from federal modern awards or this Act.

This article is general information only and does not constitute legal advice. Employment law is complex and fact-specific. Always verify your entitlements with the Fair Work Ombudsman (13 13 94) or a qualified employment lawyer.