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Why is the 'all-up' commission rate unlawful?

Why is the 'all-up' commission rate unlawful?

With the start of the new Real Estate Industry Award, commission-only arrangements providing for pre-payment of employee leave entitlements have been confirmed as being unlawful. But how did it come to this?

     

How did the 'all-up' commission rate come about?

Back in 2009, when the award was being formulated, REEF fought vigorously for the inclusion of a provision that would allow employers and their commission-only employees to agree upon an ‘all-up’ commission rate.

The idea behind the ‘all-up’ commission rate is that the commission paid to the salesperson would include an amount as consideration for their future leave entitlements (such as annual leave and personal/carer’s leave).

The Fair Work Commission accepted REEF’s proposal and from 1 January 2010 the ‘all-up’ commission rate was widely accepted as the most convenient and efficient way to pay commission-only employees.

 

Why was the 'all-up' commission rate questioned?

Fast forward to late 2014 and the Fair Work Commission turned everything on its head.

In the case of Canavan Building Pty Ltd [2014] FWCFB 3202, the Fair Work Commission considered the lawfulness of providing an employee with a “loaded up” rate of pay to cover future annual leave taken by the employee. After three separate hearings, including two appeals, the Full Bench of the Fair Work Commission settled that these loaded up rates of pay were inconsistent with the provisions of the Fair Work Act 2009.

The effect of this decision was clear: employees, whether commission-only or otherwise, must be paid for any accrued leave as the leave is taken and not in advance.

Following the decision, we advised members that REEF would be pursuing the matter as part of the then upcoming four-year award review. We believed there was an arguable case to put to the Fair Work Commission that the decision in Canavan could be distinguished from the way in which the ‘all-up’ commission rate operates in the real estate industry.

We presented a comprehensive submission during the award review proceedings and were disappointed when it was rejected by the Fair Work Commission. In its decision, the Commission confirmed the principle that the clause in the award permitting an employer and employee to agree on an ‘all-up’ rate is unlawful. The clause will be removed from the new Real Estate Industry Award.

Following the decision in Canavan, REEF re-examined its template commission-only agreement and, in 2015, we released an amended agreement called the ‘commission margin’ arrangement.

The ‘commission margin’ arrangement provides for the debiting of any accrued leave paid to an employee. Payments for accrued leave must be made when the leave is actually taken and leave payments are debited against the commission margin percentage calculated from any subsequent sales.

REEF is now considering the development of another option to help real estate employers manage the obligation to pay an employee for accrued leave. This will involve the withholding of a percentage of the commission from each sale, which will be paid to the employee as and when leave is taken.

 

What do real estate employers need to do now that the 'all-up' commission rate is unlawful?

At REEF, we understand that there are a considerable number of real estate employers who continue to apply the ‘all-up’ commission rate despite the Fair Work Commission’s decision in Canavan.

We encourage any employer still applying the ‘all-up’ commission rate to reconsider their situation. It would be wise to take immediate steps to transition employees onto a ‘commission margin’ arrangement. While this will clearly require discussion with an affected employee, it would be imprudent to continue applying an arrangement that has now been confirmed as unlawful.

 

Looking for guidance?

If you have commission-only employees who are currently on an ‘all-up’ rate, contact REEF on 1300 616 170. One of our Workplace Relations Advisors will advise you about how to best transition them to a lawful arrangement.



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About REEF

The Real Estate Employers' Federation is the real estate industry’s leading not-for-profit employer and workplace relations advisory association. It has 1500 members and subscribers across Australia.

Each year, REEF receives more than 15,000 calls from real estate employers needing help and guidance on matters affecting the employment relationship.

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