Individual Flexibility Agreement – IFA

How to pay a flat rate for all hours worked

This page is intended to illustrate just how much easier your life can be for a bit of extra effort.

Some farmers find that the Pastoral Award 2020 terms are inflexible and don’t take into account busy times or the non-standard hours involved in farming work. Wouldn’t it be great if you could just pay a flat rate for all hours worked?

You can. The Pastoral Award 2020 includes a flexibility term which enables employers and employees to agree to vary the effect of some award terms and put in place conditions of work which are tailor made to suit the needs of your business and your employees. This is called an Individual Flexibility Agreement (IFA).

The Fair Work Act ensures these arrangements don’t undermine minimum employee entitlements by requiring the employer to make sure the employee covered by the IFA is ‘better off overall’ on the IFA, compared to the award.

What can be included in an IFA?

Individual Flexibility Agreements can vary only the following award terms:

• arrangements for when work is performed such as working hours
• overtime rates
• penalty rates
• allowances
• the 17.5% leave loading

Award entitlements relating to any of these five award matters can be varied by agreement between an employer and an individual employee provided that, overall, the employee is ‘better off’ under the IFA.

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What is the Better Off Overall Test (BOOT)?

The Better Off Overall Test (BOOT) compares the IFA with the Pastoral Award 2020. The agreement will pass the BOOT if on balance the employee is better off then they would have been if no agreement had been entered into and they remained being paid according to the award. This involves a comparison of the financial reward the employee receives before and after the agreement is entered into.

The following is a step-by-step process you could use to work out if an agreement passes the BOOT – there is a spreadsheet in the Flat Pay Rate Calculator which performs this calculation for you.

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The IFA process explained

1. Employer or employee decides they would like an IFA. They approach the other party with their request in writing – an IFA letter of offer. Some employees prefer the certainty of a flat rate.
2. Both should ensure the IFA is valid by only varying the 5 matters allowable:
   
   1. arrangements for when work is performed such as working hours
   2. overtime rates
   3. penalty rates
   4. allowances
   5. the 17.5% annual leave loading
3. Employer and employee discuss the IFA
4. The employer makes sure the employee is better off overall under the IFA (see Flat Pay Rate information below)
5. Both employer and employee sign the IFA. If the employee is under 18 their parent or guardian must also sign
6. Both parties keep a copy

Using the flat rate calculator, it is relatively straightforward to work out a flat pay rate for full-time employees that takes into account overtime and penalty rates. The employer and employee must agree to the pay rate as part of the Individual Flexibility Agreement (IFA) , and the agreed rate must pass the Better Off Overall Test (BOOT) to ensure that the employee is better off overall compared with the award.

Once you have determined the relevant minimum amounts of pay required by law and any other benefits which you may be able to provide, you can begin to work out a package.

How to use the flat pay rate calculator

1. Enter the minimum hourly rate for the position, based on the classification. The number of ordinary hours is already entered. It is assumed to be 38 hours as specified in the Pastoral Award 2020
2. Enter any hours worked on Sundays that were after the employee had exceeded 152 hours within a 4 week period
3. Enter the overtime hours worked after the employee had exceeded 152 hours within a 4 week period
4. Enter number of hours and days rostered to work on public holidays over 12 months
5. The average hourly rate will be calculated. This rate is the minimum that needs to be paid to pass the BOOT

Here is an example of a flat rate of pay ($28.56), calculated using the calculator, for an employee classified as an FLH5 (Senior Farm Hand) at a minimum hourly rate of $24.49 (pay rates apply from 1 July 2023).

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If you are thinking of trying out an IFA

If you think you would like Individual Flexibility Agreements for your employees, you should contact your dairy adviser or legal adviser.

While an IFA is a relatively simple document, there are a few pitfalls you need to be aware of:

• An IFA can only be made after the employee has commenced employment and is entitled to the minimum award conditions contained in the relevant modern award. This means an employer cannot ask a prospective employee to agree to an IFA as a condition of employment.
• Most importantly, you cannot force an employee to enter into an IFA and a person must not be treated adversely or discriminated against for refusing to agree to an IFA.
• The flat rate will need to be recalculated every time there is a minimum wage increase and to reflect increases due to reclassification of the employee, e.g. moving from an FLH1 after one year to an FLH3.
• Finally, the flat rate and BOOT test will only hold true if your employee’s average hours of work don’t exceed the estimated hours. Accurate record keeping is crucial.

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Additional support material and updates

The ESKi is designed to get you started and is integrated with the resources on this website, designed to develop processes and/or documents that will help you with employment matters.

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