The Fair Work Commission has cut penalty rates for Sundays and public holidays in the retail and hospitality industries after finding they no longer were a "fair and relevant" safety net.

The special five-member full bench, headed by President Iain Ross, concluded that "deterrence is no longer a relevant consideration in the setting of weekend and public holiday penalty rates". 

It said penalty rates may deter employers from scheduling work at specified times or days, but that was a "consequence" of penalty rates, "not the objective of those additional payments".

In the largest cut, full-time and part-time retail workers' Sunday penalty rates were cut from 200 per cent to 150 per cent and casuals had their loading reduced from 200 per cent to 175 per cent.

Sunday penalty rates for hotel and pub workers, covered by the hospitality award, will be cut from 175 per cent to 150 per cent.

In fast-food, the commission aligned weekend rates for level 1 employees, the overwhelming majority of the industry, by cutting Sunday rates from 150 per cent to the Saturday rate of 125 per cent. Casual Sunday rates will be cut from 175 per cent to 150 per cent.

Public holiday rates will be cut from 250 per cent to 225 per cent from July 1 in the hospitality, restaurant, retail, fast-food, and pharmacy awards.

Sunday penalty rates were not reduced for clubs and restaurants, the latter which already saw Sunday rates cut from 175 per cent to 150 per cent for lower-skilled employees in 2014.

Likely 'positive' employment effects

Delivering the decision on Thursday, President Ross said the commission had refrained from cutting Saturday rates or, apart from the fast-food award, aligning Sunday rates with Saturday rates.

"For many workers Sunday work has a higher level of disutility than Saturday work, though the extent of the disutility is much less than in times passed".

He said employers "accept that proposition". "If that was not the case, then they would have proposed the rates for Sunday and Saturday rates would be the same. But they have not."

The commission's determination on Sunday and Saturday rates in retail, hospitality, and fast-food match what employer groups had called for.

President Ross said the commission agreed with the Productivity Commission's assessment in its final report that "there will be likely to be some positive employment effects from reduction in penalty rates".

He said it would lead to increased trading hours and increased services offered on Sundays and public holidays.

However, the president said its decision related to the circumstances of each industry and was "not a precedent for reduction in penalty rates in other awards".

The commission will now hear further submissions on the transition period for imposing the cuts to Sunday rates. However, it flagged that reductions should take place through at least two annual adjustments starting from July 1, 2017.

FWC to develop 'loaded rates'

As first reported by The Australian Financial Review last year, the commission announced it will also hear views on creating a schedule of "loaded rates" for the retail industry award after calling it "simpler and easier to understand" and potentially addressing underpayment issues.

The rate would be a flat rate paid in place of penalty rates and represent a higher amount than the minimum hourly rate.

"Schedules of 'loaded rates' would also allow small businesses to access additional flexibility without the need to enter into an enterprise agreement," the commission said.