Sunday Penalty Rate Cuts: Why The Justifications Don't Add Up

Two big claims underpin the decision to cut penalty rates for Sunday workers in the retail and hospitality sectors: that they are no longer needed or relevant, and that they cost jobs. Since 2014, employers have been battling to have these penalty rates cut based on the aforementioned augments. Now that their wish has been granted, let's see how the claims stack up.

No longer needed or relevant?

Employer groups contend that the higher wage for Sunday workers is no longer justified in a “24/7 economy” where young employees especially see no difference in working on Sundays. Prime Minister Malcolm Turnbull referred to penalty rates as an accident of history.

But evidence shows weekend work is significantly associated with work-family conflict for fathers. Data from a major national survey showed that working Sundays in particular is linked to higher work-life interference.

Other recent Australian studies showed Sunday remained a day for family and civic activities, more so than Saturday or any weekday.

Penalty rates are certainly an important component of workers' incomes in the industry. More than half (57%) of retail industry employees currently receive penalty rates. Of these, almost one-third (32%) report relying on them to meet normal household expenses. From March, these rates will be substantially reduced.

What about the job impacts?

But set aside, for the moment, whether penalty rates are still relevant. Do they kill jobs?

Employers argued that existing Sunday penalty rates lead to shorter opening hours, fewer jobs and a less desirable mix of employee experience.

The difficulty in validating such claims is in disentangling employment effects from economic conditions or general workforce changes. It isn’t easy, for example, to establish whether any jobs lost are due to higher penalty rates, an economic downturn, or something else.

Our research, however, takes advantage of a rare “natural experiment” to estimate the effect of higher Sunday penalty rates. The experiment could be done because the commission’s earlier award-modernisation process had standardised state-based industry award rates.

In particular, Sunday penalty rates for New South Wales retail award employees rose from 150% (or “time and a half”) to 200% (or “double time”) between 2010 and 2014. Over the same five years, rates remained unchanged (at 200%) for comparable Victorian workers.

By comparing the two states, and using Victoria as a “counterfactual”, we could estimate the separate effect of raising Sunday penalty rates in NSW.

The research relied on publicly available data and on widely accepted econometric methods and checks. It looked at common underlying employment trends in the two states and controlled for state-specific factors including labour market conditions, youth employment rates and industry demand.

Our research led to an initial report and then some updated estimates.

It found higher Sunday penalty rates in NSW did not have a consistent or systematic effect on retail employment as measured by the Australian Bureau of Statistics. While there was a large and significant negative effect in the first year — a drop of more than 7% in the number of employees and total hours – the total effects over the five years were a mix of positive and negative but statistically insignificant.

Most importantly, the cumulative effect on jobs over the five years was not significantly different from zero. That is, between them the five increases in Sunday penalty rates in NSW retailing did not significantly affect job levels in that industry. If there was an effect, it was too small to show up.

A different, longitudinal dataset showed no change in the number of people in NSW working on Sundays. There was, however, weakly significant evidence of a drop in the number of total hours worked in NSW retail.

Together the results suggest that in an industry dominated by casual and part-time workers, what adjustment in employment does occur happens through changing hours and not the number of employees in jobs.

Finally, on the mix of available employees, do penalty rates really mean that employers can roster only inexperienced, casual employees on Sundays?

National data show that permanent workers are more likely to say they would not continue to work unsocial hours without penalty rates.

So, labour-supply effects mean that reducing penalty rates would probably mean even less experienced workers on Sundays. And that’s what it looks like when you walk into a New Zealand supermarket – without penalty rates – on a Sunday.

What does it mean?

The implications are stark.

If changes in Sunday penalty rates have no significant effect on the number of jobs, then cutting them will do two things.

It will reduce compensation for workers employed at unsociable hours – when that compensation is, for many, very important for meeting normal household expenses. And it will constitute a transfer of income from employees to employers, likely without an offsetting increase in jobs.

The most likely outcome, then, is that retail workers will now be working longer hours for lower earnings, with little or no improvement in the number of jobs.

The Conversation

Serena Yu, Senior Research Fellow, University of Technology Sydney and David Peetz, Professor of Employment Relations, Griffith University

This article was originally published on The Conversation.


Comments

    If you work say wed-sun I don't think you should get penalty rates for a 40 hour 5 day week. You still have your 2 days off. But then if you have to work a 6th or 7th day in the cycle penalty rates should apply.

      Standard work week is still Mon-Fri. Business hours and events, social events, community events, sports etc. are all still based on the premise on the majority of the working population having a uniform two days off at the end of the week. Even the language we use to denote those two days, the weekend, reinforces the idea of a standard work week.

      Only when each day is amorphous and all faculties of society that rely on the notion of a standard work week are abolished should we discuss these kinds of changes.
      Until then, workers deserve to get paid their due, including an additional rate for the inconvenience of working irregular hours.

        Circulation logic.
        We can't get rid of weekend pay rates until we abolish weekends.
        We can't get rid of weekends until we abolish weekend pay rates.
        You have to start somewhere.

          There's quite a lot beyond pay rates that goes towards determining how a society views a standard work week and the traditional idea of the weekend. It only becomes circular when someone purposefully reduces the terms of conversation to make a point.

          If we're going to start somewhere, how about starting with not further disadvantaging workers, assuming the majority of people falling within the bracket of earning weekend rates are employed on a casual basis, at the behest of business?

            Disadvantage workers is hard to cut it sometimes when Australian workers have so many rights and entitlements compared to equivalent nations.
            One of the many reasons we have so many casuals. It's almost impossible to get rid of bad workers if they are permanent. Casual is a safety measures.

              Disadvantage is relative; devaluing reimbursement for work done disadvantages workers.

          Happy for the AFL Grand Final to be on Tuesday afternoon? Doesn't need to be on a weekend ... makes no difference, right?

            Actually I am. However, I would prefer it to be an evening match no matter what day it is, not a fan of the afternoon time slot, weekend or not.

        I agree. If businesses/government wants based their argument on any day is the same, they should be operating 7 days a week, too. Banks should be operating 7 days a week as well.

        Each employee still does 5 days a week, of course, and penalty rate only kicks in when you work 6 or 7 days a week.

        As it is now, there is no justification for lowering penalty rates. They are only excuses for employers to cut their cost at the expense of employees' welfare.

      Business owners do understand that time is like real estate, you pay more if you have more customers. They can't persuade the landlord to give their best away, but reckon they can con the defenseless worker.

      My student son works for a well known franchise. The boss won't work weekends, he wants to spend it with his family. His kids' soccer matches aren't scheduled for Mondays or Tuesdays off, but he endlessly complains about penalty rates for those who do come in on weekends and evenings.

      That casual employees are giving up the same thing is ignored by the greedy bastards making a grab for casual workers (crap) pay. They are supported by hypocrites who won't work the same hours because it clashes with the "social time" they spend out being served by low paid casuals given no choice.

      As we have seen with Seven Eleven and Service Stations, there is no limit to employers' demands, and once one does it they all have to do it just to survive. Ah, the good old days of slavery! The ultimate "full employment", ...until you weren't worth feeding!

        * Australia has the highest minimum wages in developed countries (base wage without taking into account penalty rates on-top of that!)

        I work hard every Monday to Saturday, I honestly can't understand why any one would get paid more to work on a Saturday or Sunday.. we already live in a 7 day week world and like most places around the world we too will become a 24/7 country some day, penalty rates I believe has been holding us back!

        What I don't understand is we are not getting rid of penalty rates it's just Sunday rates becoming in-line with Saturday in most cases which is still 1.5x the pay... Don't get me wrong I would LOVE 1.5x the pay but I don't think it's right!

        Also I don't get paid special Saturday rates in my field why's it different for others? one of our resent customers was boasting he only works Saturday and Sunday and 'rests' Monday to Friday and joked to us that we work too hard and should relax... Is that fair? Not in my books! He's probably on government handouts or centrelink as well I bet.

        When I was growing up I too worked both Saturday and Sunday's as well as days through the week I could between study (normally managed around 4 shifts a week)... It's part of life.. put in the hours, work hard and focus on your goals, you will get what you want and worth it in the end.

        I would like to not work Saturday's as I have a son I would like to spend time with but hay I would like to spend 7 days a week with him, it's just not possible unfortunately.

        Times are very touch for many businesses at the moment, most of our customers are struggling, couriers we speak to have been struggling and it's not easy times at the moment for small business... we all need to work hard and play hard :-)

        Just my 2 cents worth :-)

        Send your son to do some voluntary work in India Tim. He (and you) may get a slightly different perspective on how hard things are in this terrible country we live in...

          So your argument is that we should use developing nations as our sounding board for what is good?

            If the shoe fits! Plenty we could learn. Forget about Poms being considered whingers... welcome to the age of the whinging aussie!
            When I was a casual working Thursday nights and Saturday mornings I took home a meagre sum. Then along came the union and twice a year we had to (no option) pay them union fees. It amounted to 10% of my annual take home pay (I worked 5 weeks every year and took nothing away). I never saw a union official in rhe 3 years I was there. Difference was there was no fricken moaning (and maybe running water it was so long ago)....

    So, we can have the AFL grand final on a Tuesday afternoon? If every day is the same it shouldn't matter, right?

    higher wage for Sunday workers is no longer justified in a “24/7 economy” where young employees especially see no difference in working on Sundays

    This is such a weak and contrived correlation, so transparently made up from the "fact" they want to prove. Here, let me try: "Prosecuting people who punch greedy politicians (who protect the interests of big corporations instead of the individual's) in the face is no longer justified in our 'superhero pop-culture' where young people see no difference between violent films and reality".

    "We don't want to pay more money, so we're going to make bullshit arguments and use bullshit logic to try and fuck you out of money, fuck you we're rich."

      Its a delusion that small business owners are rich. They are usually not and often just scraping by. If they are rich, it's due to hard work; so let's forget the Australian tall-poppy envy game and get on with working hard.

    I always find it funny the groups calling for the axing of penalty rates refuse to work on weekends. Oh the irony.

    Removing penalty rates wont equal more people employed, Its will just line big businesses pocket with more money. These kind of groups wouldnt be happy untill we get paid Chinese worker wages.

    Last edited 19/08/16 1:14 am

      "Removing penalty rates wont equal more people employed, Its will just line big businesses pocket with more money."

      It'll mean both. You surely know this?

        And it would constitute a transfer of income from employees to employers, likely without an offsetting increase in jobs.
        The most likely outcome, then, would be retail workers working longer hours for lower earnings, with little or no improvement in the number of jobs.

        Literally in the last two sentences of the article.

          What Muffins said. Also most of the business owners pushing for the reform are businesses that operate on a tight budget, most weeks not making money at all.

          I've managed several fairly popular family restaurants and even in the very popular ones it's hard to pull a profit. We could go weeks at a time operating at a loss.

            Muffins said "nuhuh" (paraphrasing, :p).

            I'm curious though, with your experience, where you think a significant number of jobs would come from, if penalty rates were reduced or abolished?

              It's a little more complex than that. In many cases it would be like the article states. Rather than creating more jobs it would just be a case of a business operating at a profit. The bonus of this is that a new business is less likely to go bust. In many other cases it creates extra work for waiters/waitresses, dishwashers, kitchen hands, and some chefs (specifically talking about the restaurant industry)

              Most of the moderately successful restaurants will operate on a skeleton crew. This is because they can't afford to pay more staff which results in poor service which often results in a loss of customers. An owner will always prefer more staff but can't afford more staff. The exception being function based settings. When you know exactly how many people you are serving and what you're cooking it makes it much easier. In an a la carte setting it's a lot harder due to the unpredictability of customer flow.

              Reducing penalty wages for a moderately successful restaurant allows them a buffer to hire additional staff to cover if you have a large amount of walk in customers.

              Of course this all varies depending on the size of the business, how successful it is, and how consistent/predictable the flow of customers is.

              Last edited 19/08/16 3:30 pm

                So, all of that may be 100% correct, but penalty rates are not the only artificial (that is, I suppose, purely governmental interference, rather than market-based?) cost imposed upon a small business. If we want to achieve the same outcome, why not more tax concessions aimed at making running a restaurant easier?
                And since these jobs are usually performed by lower-skilled employees, and they exist in surplus, normal market forces would drive their wages down, if not for government setting minimum wages and penalties. I think there's a strong case for retaining penalty rates, but unfortunately don't have a good solution for easing the burden on many smaller businesses.

                  There's definitely other options including incentives for new businesses. This is just one of the ways that the business owners are trying to tackle the difficulty of operating a business. People get the impression that if someone runs a restaurant then that person is automatically rich and they just want to reduce staff and lower wages so they can add more money to their millions of dollars. Reality is that restaurants are rarely that profitable, especially restaurants in major cities that pay so much in rent that they need to be full every weekend just to cover rent.

              "Muffins said "nuhuh""

              I more felt I was saying "I wish to embarrass you into trying to support your claim with data." :)

              Last edited 21/08/16 11:11 am

    I once worked at a particular restaurant where the boss didn't pay us Penalty Rates, what he did do though was pay us an increased hourly rate during all other times. In the end we ended up better off or the same, there was no longer arguing who would get the "Better" Penalty Rate shifts, no longer did he have to stress about getting staff away as soon as possible on the weekends when we were busiest and it was costing him the most in staff costs as all hours were now equal.

    Everyone was extremely happy with this arrangement and I don't see why it couldn't be applied overall to Hospitality, remove penalty rates altogether and increase normal rates to compensate.

      This is already a possibility under the current system. Enterprise agreements can implement such arrangements as long as they pass the 'Better Off Overall Test' (Boot). The penalty rate reduction is a flat out pay cut to workers least likely to have alternative employment opportunities.

    Let's look at this mathematically, and work out how much this actually costs businesses.

    Assume a small business has 10 employees, and is open from 9 AM to 9 PM, seven days a week.

    10 employees * 12 hours per day * 7 days = 840 hours per week of wages.

    Now, if Sunday is double-time, then effectively we can just add another 120 hours - so we go from 840 hours per week of wages up to 960 hours per week of wages.

    This is a 14% increase in wages to pay for double-time on Sundays (this makes sense - you are effectively paying for 8 days of wages instead of 7, so it costs 1/7th more).

    One alternative is to simply keep the doors shut on Sundays. But if you assume that the business earns a similar amount of revenue every day of the week, then they would stand to lose 14% of revenue by doing this (and I'm guessing that 14% of revenue is much larger than 14% of wages... otherwise the business would be losing money).

    Of course, this is different for every business - some businesses make less revenue on weekends, so maybe they are better off closing on Sundays. However, other businesses make far more revenue on weekends.

    Another alternative is to have fewer staff working on Sundays - maybe 9 staff instead of 10. This would mean a 12% increase in wages instead of 14%. 8 staff would mean 11%.

    Do you think that an 11% increase in wages is worth it for a possible 14% increase in revenue?

      When I was studying at uni, I was only able to work three day a week. One week day that changed depending on my uni timetable, Saturday and Sunday, two of the places I worked at during that time stopped opening on Sundays as there was not enough business to justify being open with the penalty rates for Sundays.

      Now I had to take a 33% reduction in hours because of the award that I was on did not allow me to offer to work for my base rate which I would have been happy to do as it would have meant 33% more take home than when I was stuck working two days. The reality is for one of the business that I worked for this wouldn't have made a difference they still would have closed Sunday but for the other one it might have just been viable for them at the reduced rate.

      The one thing that most employees don't know is in the work place there is a hierarchy of who is entitled to the money. The employees are entitled to the first round of money, suppliers next and finally if there is any left over the business owners.

        I know it sucks to say this considering we get so boggled in the minutiae of just managing to exist (by capitalistic design) but:

        Have you considered what a shitty situation you are in to be working two different jobs while doing Uni, and being desperate enough to offer your time (that could be spent studying + socialising) and labour at a lower rate, so a store may be able to justify financially opening (meaning there is more profit to it then expense regularly, as opposed to breaking even, because why would they *waste* their time then). You're talking about valuing yourself less willingly, so they can ensure profit for themselves, because you're desperate, and have no other means to support yourself to an adequate standard.

    This is seriously messed up, the "experts" are on salaries that only working Weekdays and NOT Weekends so why do they get to make the calls for people especially Students that can only work on Weekends to ensure they can pay for their studies.

    Also as someone who has worked in finance departments and is learning more about accounting as a student studying part-time we are told to think like a business and not as an individual.

    1. Business that are already closed on Sunday will NOT start trading because of these cuts,
    2. Business that are trading on Sundays will NOT extend trading hours because of these cuts, and
    3. People who would be a volunteer to be "on call" for Sundays to earn extra income will no longer make themselves available on Sundays as they will be getting less pay now.

    I have already been told by at least a dozen friends who do the 3rd option will look at when the reductions take place and will STOP volunteering their Sundays for extra work.

    Fair Work has become UNFair Work organisation, next they will expect everyone to TIP on these days to cover the lose of wages.

    "Employers argued that existing Sunday penalty rates lead to shorter opening hours, fewer jobs and a less desirable mix of employee experience"

    What they mean is that because they have to pay people extra to incentize them to work the early sift on a Sunday when they'd probably like to be out having fun Saturday, staying at home with the kids etc, they then hire less staff on those days in order to balance out profits. Bull/s to any business trying to say they open for a shorter time on Sundays, i'd believe it if they didn't open at all, but that just business.

    Seriously. 'Shorter hours'. You mean it's hard to maintain that profit margin for your stokeholders if you''re paying you're staff so much. 'Employee experience' You mean when you force them to work Sunday and they hate it, talk amongst themselves, it lowers morale, potentially effecting profits. That 'employee experience' is a bullshit co-op said by someone wanting to sound like they cared about their employees. The only effect cutting penalty rates is going to have to the 'mixed employee experience' is that they'll still hate it, they'll now just be getting paid less to do it.

    Nothing about cutting penalty rates is about it being good for the workers, it's a scam. Remember all that sudden downsizing in staffing and out-sourcing around the 2008 GFC? When business's didn't cut pay on profits of shares, but they cut back on staff, they didn't care about you then and they don't care now. This isn't going to incentivise them to hire more staff, unless it's $15 p/h teenagers (As i've heard manager remark: 'Soo cheap'), while they congratulate them on their profit increase.

      No to mention business already avoid hiring full time as much as possible so as to not pay for things like holidays/sick/super. But that's the way it is now i hear you say. It shouldn't be, and it shouldn't be accepted.

      Then they hire teenagers because the government (who are supposed to represent the people) decided they should be paid less for their time....because what, they're less profitable? So their time is worth less.

      How about this. Instead of business owners bemoaning on their Yacht's on the weekend (because, the weekend exists for them, and they worked hard all week, don't ya know?) how expensive it is to run a business these days, because cost of living is high, they 1)lower the price of they're products attempting to push a downward fall in cost of living. 2) Take a smaller cut of the profits made by the bussiness reinvesting it in more staff and higher wages for their workers, without whom they wouldn't have a business.

      Business' will only even consider higher more staff if they think that having them will significantly increase profits, off setting the cost on higher them. Because consider this: When is the last time you just gave away money? Here, take it, i have lots of it. Not recently, and not often? Nobody in a business is going to be doing that either unless they get more worth (profit) then deficit (wages). What do these penalty cuts mean for business's, a greater ratio of worth (profit, exchanged labour) for a smaller (deficit)! The business benefits, the worker does not, unless you mean all the additional teenagers they'll hire after they point out to all other Sunday workers that they have 100 teenagers that want to work here for pocket money, if they don't want to work that shift anymore...because they have no other shifts free....they're all full up with recently out of schoolers!

      Food for thought, on wealth distribution http://mccrindle.com.au/the-mccrindle-blog/australias-household-income-and-wealth-distribution

      Quick bite: The top 20% of households earn 49% off all income in Australia, with that highest 20% owning 62% of Australias private wealth (money they've got laying around). Averaging 12x more then then a houseold in the lowest 20%. The lowest 20& earning only 4% of Australias overall 'income'.

      Things seem fair?

        A long rant painting all business owners as top hat, monocle wearing fat cats who spend weekends on their yachts rolling in the money they have made. Perhaps try starting a retail business yourself and you too could have the yacht and the profits and the monocle! Or perhaps you would be working your arse off trying to make ends meet which means working yourself on the Sunday to try and bring a little extra cash in to cover for the rest of the week where you didn't make anything. Penalty rate reductions from double time to time-and-a-half still aren't going to be good enough for you to afford to hire someone to help either.

    Where was the public debate when my job - with hundreds of others - was outsourced to India? So on one hand, I don't have much sympathy. And I wish more shops were open later and longer. But in my experience Business only ever does what's best for Business.. looking after employees is only important to the extent that it serves that goal. Give me a rule that says "You can pay lower penalty rates IF you employ more people, open longer hours, and/or drop prices" and I'll be happy. Oh and "You can send 1 job to India if you create 2 more in Australia" just for good measure.

Join the discussion!