On 18 December 2018 the Government varied the Fair Work Regulations 2009 to allow employers, in certain circumstances, to offset the casual loading paid to an employee against certain entitlements that may otherwise be owed to the employee if they are found in the future to be a permanent employee.
This change to the law has been introduced in reaction to the case of Workpac v Skene  FCAFC 131 (see our earlier article) where an employee classified as a casual employee (and paid a loading) was later found by the court to be a permanent employee. In that case the court ordered the employer to backpay the employee the annual leave he should have accrued, despite the fact that he had been paid a casual loading to compensate him for not being entitled to paid leave.
Casual loading offsetting NES entitlements
For employers to benefit from the new law, certain criteria need to be met including that: “the employer pays the person an amount (the loading amount) that is clearly identifiable as an amount paid to compensate the person for not having one or more relevant NES entitlements during a period (the employment period)”. The reference to “relevant NES entitlements” are to those matters set out in the National Employment Standards in the Fair Work Act 2009 which do not apply to casual employees and include entitlements such as paid annual leave and personal/carer’s leave, redundancy pay, etc.
The new law acts retrospectively as well as going forward – so if an employee makes a claim in the future in respect of periods of employment in the past, the Regulations will still apply.
In our view, there are two matters which employers will now need to address:
- Firstly, the loading needs to be “identifiable” – therefore a “rolled up” or “flat rate” of pay paid to a casual is unlikely to meet the criteria unless it is clearly explained what amount of this represents the casual loading; and
- Secondly, given the requirement is that the loading amount must be identifiable as an amount paid “to compensate the person for not having one or more relevant NES entitlements” it will need to be clearly spelled out that the purpose of the loading is to compensate the employee for these purposes. It is unlikely that a general offsetting clause in a contract of employment will be sufficient – the wording used should be tailored to meet the wording of the new regulation.
A copy of the new Regulation is here.
What you need to do
In our view, the best way for employers to protect themselves are to take the following steps:
- Ensure all payslips for casual employees have the casual loading as a separate identifiable amount; and
- Provide all casual employees with a written explanation that the loading paid to them is to compensate them for not having one or more relevant NES entitlements, this could be in their payslip, contract of employment or in a separate document (i.e. a letter). The explanation should use the language set out in the Fair Work Regulations.
Existing Essentials Bundle and Professional Bundle customers, as part of their access to our HR document library, will be able to access a standard template letter to be given to casual employees to explain that their loading is paid to compensate them for relevant NES entitlements.