EXPLANATORY STATEMENT
Select Legislative Instrument 2017 No.
Issued by the authority of the Minister for Employment
Subject – Fair Entitlements Guarantee Act 2012
Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment (Continuation of Indexation Pause) Regulations 2017
The Fair Entitlements Guarantee Act 2012 (the Act) establishes a scheme for the provision of financial assistance (called an ‘advance’) to former employees where the end of their employment is linked to the insolvency or bankruptcy of their employer.
Division 2 of Part 3 of the Act sets out how a person’s employment entitlements are calculated. This involves working out the basic entitlements for each of the employment entitlements a person is owed and then deducting a range of specified sums.
Sections 26 and 27 of the Act provide for a ‘maximum weekly wage rate’, which places a limit on the amount of an entitlement a person will be paid under the scheme. ‘Maximum weekly wage’ is defined in section 5 of the Act. The initial maximum weekly wage was set at $2,364. Paragraph (b) of the definition provides that the maximum weekly wage will be indexed by reference to estimates of full-time adult average weekly ordinary time earnings published by the Australian Statistician.
The method for calculating the indexation rate is set out in the Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Regulation 2013 (the Principal Regulation) which provides that the baseline amount for indexation will be the most recently indexed iteration of the maximum weekly wage. For example, the first indexation was applied to the initial maximum weekly wage of $2,364 on 1 August 2013. This resulted in a new maximum weekly wage of $2,451. This new maximum weekly wage applies until the next indexation, at which point the new indexed amount will become the baseline amount to determine the next maximum weekly wage.
In 2014 the Principal Regulation was amended by the Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment Regulation 2014, to provide that the maximum weekly wage figure as at 1 August 2013 ($2,451) will continue to apply for an additional four years, with the next annual indexation of the maximum weekly wage figure due to occur on 1 July 2018.
The Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment (Continuation of Indexation Pause) Regulations 2017 (the Amending Regulations) extend the continuation of the application of the maximum weekly wage figure as at 1 August 2013 for a further three years. The next annual indexation will occur on 1 July 2021, with the baseline amount being the 1 August 2013 figure ($2,451).
No consultation was undertaken in the preparation of the Amending Regulations as, for the purposes of section 17 of the Legislation Act 2003, the measure being adopted gives effect to a decision announced in the 2015-16 Mid-Year Economic and Fiscal Outlook. The details of the indexation pause are provided on page 166 of the 2015-16 Mid-Year Economic and Fiscal Outlook, which is available to the public. In addition, it is difficult to consult persons who would be affected by the measure as it is not possible to predict who will access the scheme. Information regarding the maximum weekly wage rate is provided on the Department’s website. Therefore consultation was not considered necessary or appropriate for the Amending Regulations.
A Statement of Compatibility with Human Rights has been completed for the Amending Regulations, in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011. The Statement’s assessment is that the Amending Regulations are compatible with human rights. A copy of the Statement is attached.
The Amending Regulations are a legislative instrument for the purposes of the Legislation Act 2003.
The Office of Best Practice Regulation advised that a Regulation Impact Statement was not required (reference 20756).
The Amending Regulations commence the day after it is registered on the Federal Register of Legislation.
ATTACHMENT
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment Regulations 2017
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Fair Entitlements Guarantee Act 2012 (the Act) establishes a scheme for the provision of financial assistance (called an ‘advance’) to former employees where the end of their employment is linked to the insolvency or bankruptcy of their employer.
Division 2 of Part 3 of the Act sets out how a person’s employment entitlements are calculated. This involves working out the basic entitlements for each of the employment entitlements a person is owed and then deducting a range of specified sums.
Sections 26 and 27 of the Act provide for a ‘maximum weekly wage rate’, which places a limit on the amount of an entitlement a person will be paid under the scheme. ‘Maximum weekly wage’ is defined in section 5 of the Act. The initial maximum weekly wage was set at $2,364. Paragraph (b) of the definition provides that the maximum weekly wage will be indexed by reference to estimates of full-time adult average weekly ordinary time earnings published by the Australian Statistician. The method for calculating the indexation rate is set out in the Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Regulation 2013 (the Principal Regulation) which provides that the baseline amount for indexation will be the most recently indexed iteration of the maximum weekly wage. For example, the first indexation was applied to the initial maximum weekly wage of $2,364 on 1 August 2013. This resulted in a new maximum weekly wage of $2,451. This new maximum weekly wage applies until the next indexation, at which point the new indexed amount will become the baseline amount to determine the next maximum weekly wage.
In 2014 the Principal Regulation was amended by the Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment Regulation 2014, to provide that the maximum weekly wage figure as at 1 August 2013 ($2,451) will continue to apply for an additional four years, with the next annual indexation of the maximum weekly wage figure due to occur on 1 July 2018.
The Fair Entitlements Guarantee (Indexation of Maximum Weekly Wage) Amendment Regulations 2017 (the Amending Regulations) extend the continuation of the application of the maximum weekly wage figure as at 1 August 2013 for a further three years. The next annual indexation will occur on 1 July 2021, with the baseline amount being the 1 August 2013 figure ($2,451).
Human Rights Implications
The Amending Regulations engage the right to social security, including social insurance, under Article 9 of the International Covenant on Economic, Social and Cultural Rights (the ICESCR). The Committee on Economic, Social and Cultural Rights has stated that the right to social security encompasses the right to access benefits, whether in cash or in kind, without discrimination in order to secure protection from lack of work-related income caused by unemployment.[1]
The Act establishes a basic payment scheme for persons whose employment has ended due to the insolvency or bankruptcy of their employer. The scheme could be characterised as ‘social insurance’ because it provides a safety net for individuals by ensuring that certain unpaid entitlements are met when a person’s employer becomes insolvent. It therefore seeks to protect individuals from lack of work-related income due to unemployment, and in this way, promotes the right to social security.
Reflecting its nature as a basic payment that has the effect of providing a safety net for individuals, the Act contains limits on the amount of unpaid entitlements that individuals are to be advanced, including through the use of a ‘maximum weekly wage’ amount to cap the weekly rate at which an entitlement will be paid. When the weekly rate under the employee’s governing instrument is greater than the ‘maximum weekly wage’ amount a claimant’s advance will not cover all of that weekly rate. However, a claimant can still pursue the remaining amount in the winding up or bankruptcy process.
The Amending Regulations pause the annual indexation of the maximum weekly wage amount, thereby having the effect of limiting the right to social security. However, the amendment is considered compatible with the right for a number of reasons.
First, in the current economic climate the trajectory of increasing costs in the scheme is not economically sustainable. As a demand driven scheme it is difficult to predict the impact of insolvency events and the associated costs on the scheme. The amendment is a fiscally responsible measure to address concerns about rising costs of the scheme in light of the Budget situation. The pausing of indexation therefore pursues the legitimate objective of assisting to provide a fair and responsible path back to a balanced budget. As such, it is a reasonable, necessary and proportionate measure.
Second, the pausing of the indexation of the maximum weekly wage amount does not affect the eligibility criteria for the scheme.
Third, only a small proportion of claimants under the scheme have had payments capped. For example, out of over 43000 claims processed between 1 July 2014 and 31 April 2017, only 1891 claimants did not receive their full weekly rate. For a claimant to have their payment capped, they must have an annual income of over $127000.
Finally, the maximum weekly wage amount only affects the amount of the advance that an applicant is entitled to receive under the scheme and does not restrict their ability to seek to recover the full entitlements owed through other avenues, for example by claiming the remainder of those entitlements through the winding up of their employer.
Conclusion
The amendment is compatible with human rights because it seeks to maintain the viability of the scheme of financial assistance and to the extent that the amendments may limit rights, those limitations are reasonable, necessary and proportionate to that legitimate objective.
Senator The Hon. Michaelia Cash, Minister for Employment
[1] Committee on Economic, Social and Cultural Rights, General Comment 19, The Right to Social Security, U.N. Doc. E/C.12/GC/19 (2008)