Modern Award vs Enterprise Agreement: What's the Difference?
If you employ people in Australia, their minimum pay and conditions come from one of two instruments: a Modern Award or an Enterprise Agreement. Understanding which one applies to your workplace, and how they differ, is fundamental to paying people correctly.
This is not an academic distinction. Getting it wrong means you are either underpaying your staff (exposing yourself to back-pay claims and penalties) or overpaying in ways that damage your margins. Both outcomes are avoidable once you understand how the system works.
The Short Version
A Modern Award is an industry-wide safety net set by the Fair Work Commission. It applies automatically to all employers and employees in a particular industry or occupation. There are 155 Modern Awards covering virtually every type of work in Australia.
An Enterprise Agreement (EA, sometimes called an EBA) is a customised set of pay and conditions negotiated between a specific employer (or group of employers) and their employees. It replaces the Modern Award for those employees, subject to the "Better Off Overall Test" (BOOT).
Think of it this way: Modern Awards are the default rules. Enterprise Agreements are bespoke rules that apply to a specific workplace, but they have to meet or beat the award on balance.
Modern Awards: The Safety Net
What they are
Modern Awards are legal instruments made by the Fair Work Commission under the Fair Work Act 2009. They set out minimum terms and conditions of employment for employees in particular industries or occupations.
There are 155 Modern Awards currently in operation. Each one covers a specific industry (like the Restaurant Industry Award, MA000119, or the General Retail Industry Award, MA000004) or a specific occupation (like the Clerks - Private Sector Award, MA000002).
What they cover
A Modern Award sets out minimum pay rates by classification level (e.g., Food and Beverage Attendant Grade 1 at $23.23/hr up to Cook Grade 5 at $27.21/hr under the Restaurant Award), penalty rates for weekends and public holidays, overtime triggers, casual loading (25%), allowances, hours of work, minimum engagement periods, and rostering rules.
How they apply
Modern Awards apply automatically. If your business falls within the coverage clause of an award and you employ people who perform work described in its classification structure, the award applies. Most businesses are covered by at least one award, and many are covered by several.
Rates are updated annually
The Fair Work Commission adjusts Modern Award pay rates each year, typically effective from 1 July. Employers must update their payroll to reflect the new rates.
The scope of 155 awards
The range of Modern Awards is broad. Here is a sample of the top 10 by workforce coverage:
| Award | Code | Est. Coverage |
|---|---|---|
| Clerks - Private Sector | MA000002 | ~850,000 |
| Hospitality Industry (General) | MA000009 | ~600,000 |
| General Retail Industry | MA000004 | ~500,000 |
| Fast Food Industry | MA000003 | ~350,000 |
| Restaurant Industry | MA000119 | ~350,000 |
| SCHADS | MA000100 | ~200,000 |
| Building & Construction | MA000020 | ~200,000 |
| Cleaning Services | MA000022 | ~150,000 |
| Health Professionals | MA000027 | ~150,000 |
| Hair and Beauty | MA000005 | ~80,000 |
Between them, these 10 awards cover roughly 65% of all award-covered employees in Australia. The remaining 145 awards cover everything from air pilots to zoo workers.
Enterprise Agreements: The Custom Option
What they are
An Enterprise Agreement is a legally binding agreement between an employer and a group of employees that sets out terms and conditions of employment. They are negotiated at the enterprise (workplace or business) level, hence the name.
EAs are governed by Part 2-4 of the Fair Work Act 2009 and must be approved by the Fair Work Commission before they take effect.
Why employers use them
Employers negotiate Enterprise Agreements for several reasons:
Flexibility: Awards are one-size-fits-all for an entire industry. An EA can be tailored to the specific needs of a particular business. For example, a restaurant group that operates primarily on weekends might negotiate an EA with slightly lower weekend penalty rates in exchange for higher base rates, better rostering certainty, or additional paid leave.
Simplicity: Some employers find it easier to operate under a single EA than to manage multiple awards. A business that would otherwise need to apply three different awards to different staff can consolidate everything into one EA.
Labour relations: Negotiating an EA gives employees a direct voice in their conditions.
Cost management: EAs allow trade-offs. An employer might offer a higher base rate in exchange for simplified penalty structures or different rostering arrangements.
The Better Off Overall Test (BOOT)
This is the critical constraint on Enterprise Agreements. Before the Fair Work Commission will approve an EA, it must be satisfied that every employee covered by the agreement would be better off overall compared to the relevant Modern Award.
The BOOT is not a line-by-line comparison. The Commission looks at the agreement as a whole and assesses whether, on balance, each employee is better off. An EA can have lower penalty rates than the award if it compensates with higher base rates, additional leave, or other benefits.
Here is a simplified example of how the BOOT might work:
Modern Award rates (Restaurant Industry Award, casual Grade 1):
- Weekday: $29.04/hr
- Saturday: $34.85/hr
- Sunday: $40.65/hr
- Public holiday: $58.08/hr
Proposed EA rates (same employee):
- All hours: $33.00/hr (flat rate, no penalty differentiation)
Would this pass the BOOT? It depends on the employee's actual working pattern. For an employee who works mostly weekdays, the flat $33.00/hr is better than the $29.04 award rate. But for an employee who works every Sunday and public holiday, the flat rate is significantly worse than the $40.65 to $58.08 they would earn under the award.
The Commission assesses this for each category of employee covered by the agreement. If any group of employees would be worse off, the EA will not be approved unless the employer offers undertakings (binding commitments to address the shortfall).
The approval process
The process involves issuing a Notice of Employee Representational Rights (21 days' notice), negotiating terms, explaining the agreement to staff (at least 7 days before the vote), holding a majority vote, lodging with the FWC, and obtaining Commission approval after a BOOT assessment. This typically takes 3 to 6 months.
Duration and expiry
Enterprise Agreements have a maximum 4-year nominal term. After expiry, the EA continues to operate until formally terminated or replaced. An expired EA does not automatically revert to the Modern Award.
Key Differences at a Glance
| Feature | Modern Award | Enterprise Agreement |
|---|---|---|
| Who sets it | Fair Work Commission | Employer + employees (approved by FWC) |
| Scope | Entire industry or occupation | Specific workplace or business |
| How it applies | Automatically | By negotiation + majority vote + FWC approval |
| Can it be customised | No (it is the default) | Yes (within BOOT constraints) |
| Minimum standard | Sets the minimum | Must meet or beat the award overall (BOOT) |
| Pay rates | Set by FWC, updated annually | Negotiated, but must specify rate increases |
| Duration | Ongoing (reviewed periodically by FWC) | Maximum 4 years nominal term |
| Flexibility on penalties | None (prescribed rates) | Can restructure (higher base, lower penalties) |
| Coverage | ~2.7 million employees | ~2.3 million employees |
| Cost to set up | Zero (applies automatically) | Significant (legal, negotiation, approval process) |
| Complexity to maintain | Moderate (annual rate updates) | Lower (fixed terms for up to 4 years) |
How Do I Know Which One Applies to Me?
Check if there is an existing Enterprise Agreement
If you are a new employee starting at a workplace, or an employer acquiring a business, the first step is to check whether an Enterprise Agreement already covers the workplace. You can search the Fair Work Commission's agreement database at www.fwc.gov.au/agreements-awards/enterprise-agreements.
If an EA is in force, it replaces the Modern Award for the employees it covers. You must comply with the EA, not the award.
If there is no EA, find the right award
If no Enterprise Agreement applies, identify which Modern Award(s) cover your employees. The FWC's Award Finder tool can help, or you can check the coverage clauses of the awards most likely to apply to your industry.
Remember that different employees in the same business can be covered by different awards. A restaurant's wait staff are under the Restaurant Award, but its bookkeeper might be under the Clerks Award.
Can both apply at the same time?
No. For a particular employee, either the Enterprise Agreement applies or the Modern Award applies. They do not operate concurrently. An EA displaces the award for the employees it covers.
However, the National Employment Standards (NES) always apply as a floor. An EA cannot reduce NES entitlements such as the minimum number of annual leave days, personal/carer's leave, or the national minimum wage.
When Does an Enterprise Agreement Make Sense?
An EA is typically worth considering when:
- Your business has unique operating patterns that do not fit neatly into an award's penalty structure (e.g., a business that operates primarily on weekends and would benefit from restructured penalty rates with a higher base)
- You want to simplify payroll by replacing multiple awards with a single agreement
- Your workforce is large enough to justify the legal and administrative costs of negotiation and approval (generally 20+ employees)
- You want to offer conditions above the award and lock them in for a defined period
- Industrial relations stability is a priority and you want a structured framework for managing workplace issues
An EA is probably not worth the effort for businesses with fewer than 15 employees, predominantly casual workforces with high turnover, or operations that fit comfortably within a single award.
Common Misconceptions
"An Enterprise Agreement lets me pay less than the award"
Not exactly. An EA can have lower rates for some elements (like penalty rates) but must leave employees better off overall. The BOOT prevents employers from using EAs to undercut the safety net. Any trade-off must be compensated elsewhere in the agreement.
"Once I have an EA, I do not need to worry about the award"
The award remains relevant even with an EA. The BOOT is assessed against the award, and if the EA is terminated, employees revert to the award. You should always know what the underlying award rates are.
"Enterprise Agreements are only for unionised workplaces"
An EA can be negotiated directly between an employer and employees without union involvement. Employees choose their own bargaining representative, which may or may not be a union.
The National Employment Standards: The Floor Under Everything
Whether you operate under a Modern Award or an Enterprise Agreement, the National Employment Standards (NES) always apply. The NES provides 11 minimum employment entitlements, including maximum weekly hours (38 + reasonable additional), annual leave (4 weeks, 5 for shift workers), personal/carer's leave, public holidays, notice of termination, and redundancy pay. No award or EA can reduce these entitlements.
Practical Example: Restaurant Under Award vs EA
Let us compare how a mid-size restaurant group might operate under the Restaurant Industry Award versus a hypothetical Enterprise Agreement.
Under the Restaurant Industry Award (MA000119), a casual Grade 2 earns $29.81/hr weekdays, $35.78 Saturday, $41.74 Sunday, and $59.63 on public holidays. A 36-hour week (20 weekday + 8 Saturday + 8 Sunday) costs $1,216.36.
Under a hypothetical EA with a flat casual rate of $34.50/hr, the same 36-hour week costs $1,242.00. The EA costs slightly more overall, but the employer gets simpler payroll (one rate instead of four) and the employee gets higher weekday earnings. Whether it passes the BOOT depends on actual roster patterns across all employees covered.
How to Determine the Right Path
Start by understanding your current award obligations fully. Analyse your actual labour costs under the award, broken down by day, time, and penalty type. Then model whether a restructured EA would pass the BOOT for all employee types and working patterns, and weigh the implementation costs (legal fees, negotiation time, approval process) against the operational benefits.
Use the AirComply Award Calculator to check the current award rates for your industry. Understanding exactly what the award requires is the essential first step, whether you plan to stay on the award or negotiate an Enterprise Agreement.
Frequently Asked Questions
Can an employee be covered by both a Modern Award and an Enterprise Agreement?
No. An EA displaces the award for the employees it covers. However, the National Employment Standards always apply as a minimum floor under both.
What happens when an Enterprise Agreement expires?
An expired EA does not automatically revert to the Modern Award. It continues to operate until it is formally terminated by the Fair Work Commission or replaced by a new agreement. Either the employer or employees can apply to terminate an expired EA.
Can I negotiate an Enterprise Agreement with just one employee?
Since the repeal of individual flexibility arrangements as a substitute for awards, Enterprise Agreements require a group of employees. You cannot make a single-employee EA. However, Individual Flexibility Arrangements (IFAs) under section 144 of the Fair Work Act allow limited variations for individual employees within the framework of an award or EA.
Do Enterprise Agreements need to include pay increases?
Yes. The Fair Work Act requires that EAs include terms that provide for pay increases during the life of the agreement. These can be fixed annual increases, CPI-linked adjustments, or other mechanisms, but there must be a mechanism for wages to increase over the agreement's term.
How much does it cost to set up an Enterprise Agreement?
For a straightforward EA for a small to medium business, legal and advisory costs typically range from $5,000 to $20,000. More complex negotiations cost more.
Can I terminate an Enterprise Agreement and go back to the award?
Yes, by applying to the Fair Work Commission. The Commission must be satisfied that termination is appropriate. After termination, the relevant Modern Award applies.
Are casual employees covered by Enterprise Agreements?
Yes. The BOOT applies to casual employees as well, so they must be better off overall compared to their entitlements under the relevant Modern Award.