Fair Work Commission

Methods of setting pay

Method of setting pay data collected in the AWRS has been generated using similar processes to those used by other sources of wage-setting data.

The definitions used to explain the differences between wage-setting methods have differed. For example, the method of setting wages by an individual arrangement was defined in the AWRS as a method that did not take account of an award or enterprise agreement.

Arrangements that use awards as a base or a guide are included in the AWRS as a sub-set of the award wage-setting method as 'over-award'. This approach was used in the Award Reliance Survey undertaken in 2013 on behalf of the Commission.

Similarly, wage-setting practices that are based on an enterprise agreement, even where the enterprise is paying more than the applicable rate for an employee, should be included in the enterprise agreement pay-setting category.

This approach is in contrast to the pay-setting categories reported in the ABS Employee Earnings and Hours survey whereby 'over-award' arrangements would be included in estimates for individual arrangements. There may be utility in the AWRS dataset to include 'over-award' arrangements within the individual arrangements pay-setting category as required.

Table 5.1 provides an overview of the range of wage-setting practices used by enterprises to set wages for at least 1 of their employees.

Typically wage-setting analysis focuses on the outcomes for the employee population; however, this analysis demonstrates how the AWRS can be used to study the wage-setting practices of enterprises.

Table 5.1 shows that almost two-thirds of enterprises reported using awards (65%) and individual arrangements (64%) to set wages for at least 1 employee. Of note, Table 5.4 presents workforce estimates for the application of these pay-setting methods, which demonstrates that the incidence of enterprise usage is notably different to the degree of coverage of wage-setting arrangements across the employee workforce.

Source: AWRS 2014, Employee Relations survey.

Base = 3043 for enterprise agreement, Individual arrangement and Award-based analysis. Records where don't know, missing and unknown pay-setting arrangements have been excluded (14 enterprises).

Base = 2 869 for Award reliant and Over-award analysis. Records where don't know, missing and unknown wage-setting arrangements have been excluded (89 enterprises).

Note: Does not add up to 100% as employers may use multiple methods of setting pay.

* Award-based includes arrangements where the award is used as a guide/base for pay setting or pay is set at exactly the award rate.

** Award-reliant is setting a pay rate at exactly the applicable award rate.

*** Over-award is a method where pay is set with reference to an award rate (i.e. as the base) but not at exactly the applicable award rate.

Table 5.2 demonstrates that the main method reportedly being used to set pay among enterprises in the AWRS was by using awards (i.e. exactly the applicable award rate or using an award as a guide), with over half (51%) of enterprises reporting using this method to set wages for the majority of the workforce.

Paying exactly the applicable award rate was the main method of setting pay for one-quarter of enterprises and a further one-quarter referenced the award to set pay rates.

Of note, Table 5.4 presents workforce estimates for the application of these pay-setting methods across the employee population, which demonstrates that the incidence of enterprise usage is significantly different to the degree of coverage of wage-setting arrangements across the employee workforce.

Source:  AWRS 2014, Employee Relations survey and Enterprise Characteristics (Recruitment screener) survey.

Base = 2971 for Enterprise agreement, Individual arrangement and award-based analysis. Includes enterprises that had a main method of setting pay calculated as the method that was used to set pay for the largest proportion of employees. Excludes 86 enterprises where two methods of setting pay were used in equal proportion.

Base = 2922 for Award reliant and Over-award analysis. Records where don’t know, missing and unknown wage-setting arrangements have also been excluded (45 enterprises).

* Award-based includes arrangements where the award is used as a guide/base for pay setting or pay is set at exactly the award rate.

** Award-reliant is setting a pay rate at exactly the applicable award rate.

*** Over-award is a method where pay is set with reference to an award rate (i.e. as the base) but not at exactly the applicable award rate.

In addition to the type of wage-setting methods noted above, there are provisions under the Fair Work Act 2009 (Cth) that enable employers to make Individual Flexibility Arrangements (IFAs) with their employees that can vary the wages for an employee as set out in a modern award or enterprise agreement

Employment conditions that can be modified through an IFA include a range of wage-related clauses, including, but not limited to:

• penalty rates
• overtime
• allowances,
• and leave loading.

There may be scope for analysis of these pay-setting arrangements that are based on awards and enterprise agreements to be analysed as an 'individual arrangement', although the reference period for data collected about IFA use is different to the method of setting pay data.

As demonstrated by the analysis presented in Table 5.3, 14% of enterprises reported making an IFA with an employee to modify wages since 1 July 2012. These findings are broadly aligned with the incidence of IFA use reported in the 2012 General Manager’s report into the use of IFAs.

The inclusion of information in the AWRS dataset along with detailed information about methods of setting pay may present opportunities for further analysis of how wage-setting methods can best be measured and analysed.

Source: AWRS 2014, Employee Relations survey.

Estimates of methods of setting pay for the employee population

The AWRS may also generate estimates of the employee population from the data collected from enterprises. One example of this is to use the information provided by employers about the wage-setting practices used across the employee workforce to generate estimates of the incidence of wage-setting practices across the employee population.

Table 5.4 shows that 36% of employees had their pay set by an award. This can be further broken down by whether employees were paid exactly the award rate or an amount above the applicable award rate (i.e. Over-award). Table 5.4 presents employee population estimates for the Award reliant and Over-award pay-setting arrangements that also specifies the proportion of employees who have their pay set by an award-based arrangement, but where it is unclear whether they are paid exactly the award rate or above the applicable award rate.

Analysis of the Award-based arrangements that excludes the Unknown award-based arrangements show that 18% of the employee population were paid exactly the rate specified in an award. The Commission intends to conduct further analysis of the Unknown award-based arrangements data.

Source:  AWRS 2014, Employee Relations survey.

Base = weighted workforce count of 9 061 447 employees for Enterprise agreement, Individual arrangements and Award-based analysis. Records where don’t know, missing and unknown wage-setting arrangements have been excluded (47 466).

Base = weighted workforce count of 7 633 604 employees for Award-reliant and Over-award analysis Records where don’t know, missing and unknown wage-setting arrangements have been excluded (1 427 843).

* Award-based includes arrangements where the award is used as a guide/base for pay setting or pay is set at exactly the award rate.

** Award-reliant is setting a pay rate at exactly the applicable award rate.

*** Over-award is a method where pay is set with reference to an award rate (i.e. as the base) but not at exactly the applicable award rate.

**** Unknown award-based method includes don’t know and missing responses.

Method of setting pay estimates for the employee population are available from the ABS Employee Earnings and Hours survey. This catalogue provides more information about the characteristics and earnings of employees than the data derived from employers in the AWRS because the unit of analysis for the EEH catalogue is the employee population. That is, all data collected relates to individual employees.

Researchers interested in analysis of the characteristics of employees according to methods of setting pay may use data from the AWRS employee survey.

Employee reported methods of setting pay

The AWRS collected information from employees about how they believed their pay was set. This was based on research (noted earlier in this report) that a technical understanding of wage-setting practices can be relatively low among employees.

The approach used was to enable an understanding of if and how employees are involved in wage-setting. The AWRS therefore adopted wage-setting categories that were considered to resonate with experiences of employees.

As presented in Table 5.5, 43% of employees indicated that they negotiated their wage/salary with their employer. More males (51%) than females (36%) reportedly negotiated their wage/salary with their employer.

More employees in the Accommodation and Food Services, and Heath Care and Social Assistance industries reported having their pay set by an award (43% and 39% respectively) than via negotiation with their employer (27% and 22% respectively).

Source:  AWRS 2014, Employee survey and Enterprise Characteristics (Recruitment screener) survey.

Base = 7297 employees for analysis of employees by industry, percentages by row. Employees who did not know how their pay was set or chose not to provide a response are excluded from the analysis.

Base = 7274 employees for analysis of employees by gender, percentages by row. Employees who did not provide their gender are excluded from the analysis. Also excluded are employees who did not know how their pay was set or chose not to provide a response.