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4102.0 - Australian Social Trends, 2002  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 09/05/2002   
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Contents >> Work >> Paid work: How pay is set

Employment arrangements: How pay is set

Of all employees in May 2000, the largest proportion (40%) had their pay set by individual agreements. Almost as many (37%) had their pay set by collective agreements.

Australia's industrial relations system has undergone extensive changes in the last twenty years, particularly during the 1990s, as both the Commonwealth and State governments moved to deregulate labour markets. Within the broader context of the restructuring and globalization of the Australian economy, industrial relations reforms have aimed to increase the flexibility, productivity and international competitiveness of Australia's workforce.

Until the early 1990s, the wages and conditions of most Australian employees were regulated by a system of awards administered by federal and State industrial commissions and courts. Awards generally prescribe employment conditions and rates of pay for occupational structures within industries. Employers are bound by law to pay at least the rates prescribed in an award to all of their employees covered by the award.

In more recent years, there has been a move away from the award-based centralised wage fixing environment in favour of agreements at the enterprise, workplace and individual employee levels. Although these agreements are often underpinned by awards, legislation has reduced the role of awards, principally to the status of a ‘safety net’ of minimum wages and conditions. Anything beyond these minimum provisions are now generally negotiated through either a collective or individual agreement-making process.

This new focus on localised agreement-making processes may present opportunities for both employers and employees to reach mutually beneficial agreements tailored to their specific situations and needs. However, there is also recognition that some groups of employees (e.g. part-time and casual workers, and those employed in the lower skill occupations) may have limited resources and bargaining power and thus be disadvantaged in their attempts to negotiate pay and other work conditions above the basic award provisions.


Methods of setting pay
This article draws on data from the biennial ABS Survey of Employee Earnings and Hours. Information on methods of setting pay was included in this survey for the first time in May 2000.

Awards are legally enforceable determinations made by federal or State industrial tribunals that set the terms of employment (pay and/or conditions) usually in a particular industry or occupation. Award-only employees are those whose pay was set by awards and who were not paid more than the award rate of pay in the survey reference period.

Collective agreements set the terms of employment for a group of employees. These agreements result from bargaining between an employer (or group of employers) and a group of employees (or one or more unions or employee associations representing the employees). They are generally restricted to employees within a single enterprise or workplace and are sometimes referred to as enterprise awards. They may be agreed to by a valid majority of employees or by their representing union(s). Employees whose pay was set by collective agreements are those who had all or part of their pay in the survey reference period set by collective agreements. This group includes employees who had their pay set by collective agreements in conjunction with awards.

Individual agreements set the terms of employment for individual employees. These agreements may result from negotiation between an employer and an individual employee (or their representative) or from a unilateral decision by management to set non-negotiable terms of employment. In either case, they are agreed to by individual employees rather than by their representatives or groups of employees. Employees whose pay was set by individual agreements are those who had all or part of their pay in the survey reference period set by individual agreements. This group mainly consists of employees whose pay was set by individual common law contracts, employees receiving overaward payments by individual agreement, and working proprietors (of incorporated enterprises) who set their own rate of pay. This group includes employees who had their pay set by individual agreements in conjunction with other pay setting methods (awards and/or collective agreements).


Methods of setting pay
Of all employees in May 2000, the largest proportion (40%) had their pay set by individual agreements. Almost as many (37%) had their pay set by collective agreements, while the remaining 23% had their pay set by awards only (i.e. were paid at exactly the award rate). The vast majority of employees whose pay was set by collective agreements were in collective agreements that had been registered with a federal or State tribunal. In contrast, the vast majority of employees whose pay was set by individual agreements had unregistered agreements - including individual common law contracts and less formal arrangements.

There are many factors which have a bearing on the pay setting methods currently in place, including the size, sector (public or private) and industry of the employer. There is also an association between certain employee characteristics (e.g. occupation, full-time/part-time status, sex) and the methods used to set employees' pay. The following subsections will briefly examine the influence that each of these factors has on how employees' pay is set, and will touch on some of the complex interrelationships that exist between them.

METHODS OF SETTING PAY - MAY 2000

Proportion of employees
%

Awards only
23.2
Collective agreements
36.8
    Registered
35.2
    Unregistered
1.5
Individual agreements
40.0
    Registered
1.8
    Unregistered
38.2
Total employees
100.0

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Employer size
Smaller businesses (i.e. those with less than 100 employees) are more likely to use individual agreements, while those with larger numbers of employees are more likely to use collective agreements. In May 2000, the proportion of employees whose pay was set by individual agreements ranged from 69% in businesses of less than 20 employees down to 9% in those with 1,000 or more employees. Conversely, the proportion of employees whose pay was set by collective agreements ranged from 4% in businesses of less than 20 employees up to 83% in those with 1,000 or more employees.

Award-only employees comprised a similar proportion of employees (between 25% and 32%) in all but the largest businesses. In businesses with 1,000 or more employees, only 8% of employees had their pay set by awards only.

EMPLOYER SIZE AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total
Employer size
%
%
%
%

Under 20 employees
27.5
4.0
68.5
100.0
20-49 employees
31.8
11.9
56.4
100.0
50-99 employees
31.8
23.5
44.8
100.0
100-499 employees
28.5
40.2
31.4
100.0
500-999 employees
24.9
52.6
*22.4
100.0
1,000 or more employees
7.7
82.9
9.4
100.0
All employees
23.2
36.8
40.0
100.0

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Industry
For most industry groups the distribution of employees across pay setting methods largely reflects their distribution across employer size categories. However, other factors such as economic sector of employer and occupational skill levels of employees also influence pay setting methods in some industries.

In May 2000, consistent with recent directions in government policy, collective agreements were the most common pay setting method used in the predominantly public sector industries. The proportions of employees whose pay was set by collective agreements were highest in Government administration and defence (78%), Education (77%), Electricity, gas and water supply (77%) and Communication services (69%). These industries are also dominated by very large employers. In the Health and community services industry, which is also mainly public sector, 44% of employees had their pay set by collective agreements, 37% by awards only and 19% by individual agreements. This pattern partly reflects the more even spread of employees across all employer size categories in this industry.

Individual agreements were the most common method used to set employees' pay in all but two of the predominantly private sector industries. In May 2000, the three industries with the highest proportions of employees with individual agreements were Wholesale trade (77%), Property and business services (68%) and Construction (61%). These industries also had the highest proportions of employees working in businesses with less than 20 employees, and relatively low proportions working in businesses with 500 or more employees. In the Finance and insurance industry, more employees had their pay set by collective agreements (50%) than individual agreements (44%). This was in keeping with the proportion of employees working in larger businesses in this industry.

Award-only employees comprised the majority (65%) of all employees in the Accommodation, cafes and restaurants industry in May 2000. Consistent with the predominance of small businesses in this industry, only 7% of employees had their pay set by collective agreements, but use of individual agreements was much lower than in other ‘small business’ industries. It may be that the predominance of award-only employees in this industry is associated with its relatively low-skill occupational profile. This may also be a factor in Retail trade, which had a relatively high proportion of award-only employees (35%). Award-only employees also comprised relatively large proportions of all employees in Health and community services (37%) and in Personal and other services (27%).

INDUSTRY OF EMPLOYMENT AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total
Industry group
%
%
%
%

Mining
*5.9
39.7
54.3
100.0
Manufacturing
11.4
37.0
51.6
100.0
Electricity, gas and water supply
*1.4
76.5
22.1
100.0
Construction
15.0
23.8
61.2
100.0
Wholesale trade
12.1
10.8
77.1
100.0
Retail trade
34.9
28.7
36.5
100.0
Accommodation, cafes and restaurants
64.7
6.7
28.6
100.0
Transport and storage
18.4
40.1
41.5
100.0
Communication services
*1.5
69.4
29.1
100.0
Finance and insurance
5.6
49.9
44.4
100.0
Property and business services
20.7
11.1
68.2
100.0
Government administration and defence
15.3
77.9
6.8
100.0
Education
13.6
77.1
9.3
100.0
Health and community services
37.4
43.5
19.1
100.0
Cultural and recreational services
18.9
33.3
47.8
100.0
Personal and other services
27.1
42.8
30.1
100.0
All employees
23.2
36.8
40.0
100.0

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Occupation
The occupations in which awards still predominate tend to be associated with lower skill levels. In May 2000, the occupation groups with the highest proportions of award-only employees were Elementary clerical, sales and service workers (42%) and Labourers and related workers (37%). In all other major occupation groups, award-only employees made up the smallest proportion of total employees.

In the higher and intermediate skill level occupation groups, individual agreements tended to be the most common method of setting pay in May 2000. The exceptions were Professionals and Intermediate production and transport workers, who were more likely to have their pay set by collective agreements. Notably, the proportion of employees in professional occupations who had their pay set by collective agreements (51%) was higher than for any other occupation group. This may be because a large proportion of professionals (particularly teachers and nurses) work for large public sector employers. The proportions of employees whose pay was set by individual agreements were highest among Managers and administrators (74%), Advanced clerical and service workers (65%) and Associate professionals (54%).

OCCUPATION OF EMPLOYEES AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total
Occupation group (Skill level(a))
%
%
%
%

Managers and administrators (1)
3.3
22.9
73.8
100.0
Professionals (1)
13.2
51.4
35.4
100.0
Associate professionals (2)
12.2
33.8
54.1
100.0
Tradespersons and related workers (3)
23.1
32.0
44.9
100.0
Advanced clerical and service workers (3)
14.2
20.9
64.9
100.0
Intermediate clerical, sales and service workers (4)
29.9
31.4
38.7
100.0
Intermediate production and transport workers (4)
19.1
48.7
32.2
100.0
Elementary clerical, sales and service workers (5)
42.0
36.9
21.1
100.0
Labourers and related workers (5)
36.9
34.6
28.5
100.0
All employees
23.2
36.8
40.0
100.0

(a) Occupation groups are based on the Australian Standard Classification of Occupations (ASCO) Second Edition (ABS cat. no. 1220.0).

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Full-time and part-time employees
In May 2000, similar proportions of both full-time and part-time employees had their pay set by collective agreements (38% and 35% respectively). However, there were large differences between full-time and part-time employees in relation to individual agreements and awards. Among full-time employees the most common method of setting pay was individual agreements (47%) and the least common was awards only (15%). In contrast, the most common method of setting pay for part-time employees was awards only (40%) and the least common was individual agreements (26%).

Part of this difference can be attributed to differences in the occupation and industry mix of full-time and part-time employees. For example, in May 2000, proportionally more full-time than part-time employees were working in occupations in which individual agreements were the predominant method of setting pay (55% compared with 42%).1 On the other hand, proportionally more part-time than full-time employees were working in occupations in which awards were the predominant method of setting pay (39% compared with 14%).1 Similarly, over half (53%) of all part-time employees, but only 22% of all full-time employees, were found in the three industry groups with the highest proportions of award-only employees.1

However, in May 2000, there was also a general tendency towards using awards to set pay for part-time employees, and individual agreements to set pay for full-time employees. In all of the occupation groups, and in all but one of the industry groups, part-time employees were more likely than full-time employees to have their pay set by awards only. Similarly, in all but one of the occupation groups, and in 11 of the 16 industry groups, full-time employees were more likely than part-time employees to have their pay set by individual agreements.

FULL-TIME, PART-TIME STATUS OF EMPLOYEES AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total

%
%
%
%
Full-time employees
15.3
37.8
47.0
100.0
    Males
12.4
37.5
50.1
100.0
    Females
19.9
38.3
41.8
100.0
Part-time employees
39.9
34.6
25.5
100.0
    Males
37.4
33.3
29.3
100.0
    Females
40.8
35.1
24.1
100.0
All employees
23.2
36.8
40.0
100.0
    Males
16.8
36.7
46.5
100.0
    Females
29.9
36.8
33.3
100.0

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Male and female employees
Pay setting methods varied considerably between men and women in May 2000. While equal proportions of male and female employees (37%) had their pay set by collective agreements, female employees were more likely than males to have their pay set by awards, and less likely to have their pay set by individual agreements. Close to 30% of all female employees had their pay set by awards only (compared with 17% of males) and 33% had their pay set by individual agreements (compared with 47% of males). Some of this difference can be explained by the much higher proportion of female employees who worked part-time in May 2000 (43% compared with 13% of male employees).1

However, even among full-time employees, females were more likely than males to have their pay set by awards only (20% compared with 12% of males) and less likely than males to have their pay set by individual agreements (42% compared with 50% of males). Part of this difference can be attributed to the different occupation and industry mix of female and male full-time employees. For example, in May 2000, 43% of all female full-time employees, but only 23% of male full-time employees, were found in the three relatively low-skill occupation groups with the highest proportions of award-only employees.1 Similarly, 33% of all female full-time employees, but only 17% of all male full-time employees, were found in the three industry groups with the highest proportions of award-only employees.1

Compositional effects aside, in all of the occupation groups, female full-time employees were more likely than male full-time employees to have their pay set by awards only. This was also the case in 11 of the 16 industry groups. In all but one of the occupation groups, female full-time employees were less likely than male full-time employees to have their pay set by individual agreements. However, this pattern was less widespread across industry groups, being evident in only half of them.

AVERAGE WEEKLY TOTAL EARNINGS OF EMPLOYEES AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total
ratio(a)
ratio(a)
ratio(a)
$

Full-time employees
0.73
1.08
1.03
821.00
    Males
0.70
1.07
1.02
883.80
    Females
0.80
1.09
1.01
717.70
Part-time employees
0.90
1.12
0.99
301.00
    Males
0.91
1.02
1.09
289.00
    Females
0.90
1.15
0.96
305.60
All employees
0.64
1.10
1.12
652.80
    Males
0.62
1.08
1.07
780.20
    Females
0.73
1.13
1.11
520.60

(a) For any group of employees, the average weekly total earnings associated with each pay setting method expressed as a proportion of the average weekly total earnings of all employees in that group.

Source: Employee Earnings and Hours, Australia, May 2000 (ABS cat. no. 6306.0).


Relative earnings of employees
Comparing employee earnings across methods of setting pay provides a broad indication of the different wage and salary outcomes for employees under varying methods, and can help to identify those groups of employees most at risk of disadvantage in the workplace. However, such comparisons only provide part of the picture. Access to other employee benefits such as employer funded superannuation (over and above the prescribed minimum), employee discounts, employer provided/subsidised services (e.g. childcare), paid leave and so on, also have a considerable impact on the working lives and overall wellbeing of employees. In addition, the agreement-making process allows for rolling some employee entitlements (e.g. paid overtime) into a general weekly pay level. This could affect the comparability of average weekly earnings across pay setting methods, as could practices such as salary packaging and salary sacrificing which reduce cash earnings.

In May 2000, employees whose pay was set by individual agreements earned an average of $731 per week which was 1.1 times the average for all employees. Those whose pay was set by collective agreements earned a little less ($717 per week ). The average weekly earnings of award-only employees were much lower, averaging $416, or 0.6 of the average for all employees.

Relatively low average earnings among award-only employees are consistent with the recently reduced role of awards in setting minimum wages and conditions. However, such broad level comparisons can be strongly affected by certain compositional factors such as the full-time/part-time, male/female and occupational mix of employees in each pay setting group. For example, over half (56%) of award-only employees worked part-time compared with 30% of employees whose pay was set by collective agreements, and 21% of those whose pay was set by individual agreements.

Taking the full-time/part-time status and sex of employees into account, award-only earnings were still considerably lower than for the other pay setting methods, particularly among male full-time employees. However, with the exception of male part-time workers, employees whose pay was set by collective agreements had higher average earnings than those who had individual agreements.

A similar pattern occurs with occupation groups. Among full-time employees in May 2000, both males and females whose pay was set by collective agreements had the highest average earnings in all but one of the nine occupation groups. It was only among Professionals that individual agreements delivered the highest average earnings. Among male full-time employees, award-only employees had the lowest average earnings (compared with other pay setting methods) in all occupation groups except Advanced clerical and service workers and Intermediate production and transport workers. In these two occupation groups, those on individual agreements had the lowest average earnings. Among female full-time employees, award-only employees had the lowest average earnings in all occupation groups.

The degree of the difference between award-only earnings and the highest average earnings for full-time employees in each group tended to be less for females than males in most occupation groups. By far the greatest difference for both males and females was among Tradespersons and related workers, possibly because apprentices make up a relatively high proportion of award-only employees in this group. The earnings ratio of male full-time award-only employees in this occupation group was 0.7 compared with 1.3 for those whose pay was set by collective agreements. For female full-time employees, the ratios were 0.9 and 1.3 respectively.

In most industry groups, full-time employees whose pay was set by individual agreements had the highest average earnings. The difference between their earnings and the earnings of those whose pay was set by other methods was greatest among male full-time employees in industries dominated by large employers. This is consistent with the common practice in large enterprises of using collective agreements to set the pay of the majority of employees, and individual agreements for the (predominantly male) higher level managerial and executive staff.

Among male full-time employees, award-only employees had the lowest average earnings (compared with other pay setting methods) in all industry groups except Mining (where those on individual agreements had the lowest earnings) and Accommodation, cafes and restaurants (where those with collective agreements had the lowest earnings). Among female full-time employees, award-only employees had the lowest average earnings in all industry groups except Accommodation, cafes and restaurants (where those with collective agreements had the lowest earnings).

AVERAGE WEEKLY TOTAL EARNINGS OF FULL-TIME EMPLOYEES: OCCUPATION AND METHODS OF SETTING PAY - MAY 2000

Awards only
Collective agreements
Individual agreements
Total
Occupation group (Skill level(b))
ratio(a)
ratio(a)
ratio(a)
$

Male full-time employees
    Managers and administrators (1)
0.83
1.02
1.00
1,355.8
    Professionals (1)
0.80
0.99
1.03
1,085.3
    Associate professionals (2)
0.85
1.10
0.95
906.7
    Tradespersons and related workers (3)
0.66
1.26
0.95
753.4
    Advanced clerical and service workers (3)
1.03
1.09
0.92
796.5
    Intermediate clerical, sales and service workers (4)
0.81
1.06
1.02
737.4
    Intermediate production and transport workers (4)
0.92
1.12
0.88
784.6
    Elementary clerical, sales and service workers (5)
0.85
1.14
0.95
664.2
    Labourers and related workers (5)
0.80
1.14
0.92
680.9
Female full-time employees
    Managers and administrators (1)
0.84
1.02
1.01
1,145.80
    Professionals (1)
0.90
1.00
1.03
907.90
    Associate professionals (2)
0.87
1.09
0.98
731.50
    Tradespersons and related workers (3)
0.87
1.31
1.01
525.00
    Advanced clerical and service workers (3)
0.91
1.19
0.96
667.00
    Intermediate clerical, sales and service workers (4)
0.86
1.09
1.01
612.20
    Intermediate production and transport workers (4)
0.84
1.15
0.93
571.70
    Elementary clerical, sales and service workers (5)
0.87
1.13
1.02
532.70
    Labourers and related workers (5)
0.88
1.11
0.93
559.30

(a) For any group of employees, the average weekly total earnings associated with each pay setting method expressed as a proportion of the average weekly total earnings of all employees in that group.
(b) Occupation groups are based on the Australian Standard Classification of Occupations (ASCO) Second Edition
(ABS Cat. no. 1220.0).

Source: ABS 2000 Survey of Employee Earnings and Hours.


Endnotes
1 Australian Bureau of Statistics, May 2000 Labour Force Survey.



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