Navigating the changes to casual conversion laws

With over 2.7 million Australians working as casual employees, casual employment plays an essential role in the Australian economy, especially in industries that rely on flexibility, such as retail, hospitality, and healthcare. However, with the growing scrutiny on the rights of casual employees, upcoming changes to casual conversion laws will put employers in the spotlight, ensuring that businesses provide eligible casual workers with the option to transition to permanent employment.

For many businesses, this means navigating new legal requirements, where casual employees have a right to request conversion, and employers must respond within 21 days while managing tracking and documentation obligations.

In this article, we define what it means to be a casual employee, break down the casual conversion process, and explore the key updates to the casual conversion laws. We also explore how Rippling can help you manage compliance, streamline casual conversion, and avoid legal risks now that these new regulations have started taking effect. 

All information in this article is accurate as of 10th September 2024. For the latest updates and guidance, please refer to the Fair Work Act.

Casual employee definition

As of 26 August 2024, the definition of a casual employee under the Fair Work Act shifted to focus more on the actual nature of the employment relationship rather than relying solely on the terms of the employment contract. The previous definition classified a casual employee as someone who is offered and accepts employment with no firm advance commitment to ongoing work, with key factors like the ability to accept or reject shifts and entitlement to casual loading. This definition was reinforced by the 2021 High Court decision in Workpac Ltd v Rossato, which placed significant weight on the employment contract.

Under the new definition, an employee is considered casual only if there’s no firm advance commitment to continuing and indefinite work, and they have a right to casual loading or a specific rate of pay under a Fair Work instrument or their contract. The determination must consider the real substance, practical reality, and true nature of the employment relationship, rather than just the wording of the contract.

What is casual conversion?

Casual conversion is the process that allows a casual employee to transition to permanent employment, either as a part-time employee or full-time employee, if they meet certain criteria. This right ensures that casual employees who've worked a regular pattern of hours over an extended period can seek more stable and predictable employment.

Recent trends have placed increased focus on employee rights, pushing the Australian government to strengthen casual conversion laws. The casual conversion law changes that are soon to come about are a response to concerns that some businesses were exploiting casual contracts to avoid offering benefits associated with permanent employment, such as paid leave and job security. As a result, the updated laws will tighten the eligibility criteria, offering more clarity for both employees and employers, while ensuring businesses adhere to fair employment practices.

Key changes to casual conversion laws

The new casual conversion laws under the Fair Work Act introduce significant changes for both employers and employees, most notably with the introduction of the 'Employee Choice Pathway.' This new process will replace the previous employer-driven conversion model, giving casual employees greater control over their employment status by allowing them to notify their employer in writing if they wish to convert from casual employment to permanent part-time or full-time employment.

What’s changing?

Currently, under the Fair Work Act, casual conversion is largely employer-driven. There’s a requirement for employers to offer permanent employment to eligible casual employees after 12 months of service, provided the employee has worked regular hours for the last six months. While employees can also submit a casual conversion request, the responsibility to manage the process rests with the employer. Employers can refuse these requests based on 'reasonable business grounds,' such as a lack of ongoing work.

The Employee Choice Pathway, set to begin on 26 February 2025 for most businesses and on 26 August 2025 for small business employers, shifts this responsibility to casual employees. Casual employees hired after 26 August 2024 will become eligible to request conversion as early as February 2025 if they meet the criteria of having worked for at least six months (or 12 months for small businesses). Employees can notify their employer in writing if they believe they no longer meet the definition of a casual employee. Employers must then respond within 21 days, either accepting the request or providing a clear, valid reason for refusal, such as reasonable operational grounds or the employee still meeting the casual definition.

This change is already having an impact on workforce planning for employers, particularly in industries that rely on flexible staffing, such as retail and hospitality. Businesses must now adjust their staffing strategies to prepare for the influx of conversion requests starting in February 2025, ensuring they can maintain the right balance between casual and permanent roles.

Learn more about strategic workforce planning amid casual conversion changes

Employer obligations under the new laws

Under the updated Fair Work Act, Australian employers need to take several key actions to ensure compliance with the new casual conversion laws, particularly the introduction of the Employee Choice Pathway. These obligations require you to be proactive, organised, and clear in their communication with employees. You can explore the obligations below:

1. Monitor employee eligibility

You need to closely track the employment duration and work patterns of casual employees. Once your business employs a casual worker for six months (or 12 months for small businesses) and they work a regular pattern of hours, they become eligible to notify you of their desire to convert to a permanent employee. Maintaining accurate records is essential to assess this eligibility effectively.

In addition to tracking initial eligibility, it’s essential to have systems in place for continuous monitoring of work patterns. Even if a casual employee isn't currently eligible or decides not to convert to permanent employment, their status may change over time if their work patterns shift, or they may choose to request conversion at a later date.

2. Employee consultation

When a casual employee submits a written request to convert to permanent employment, there's a requirement for you to consult with them before making any decision. During this consultation, it’s important to provide the employee with a clear understanding of the implications of converting to part-time or full-time employment. Key areas to discuss may include:

• Flexibility: As a casual employee, they have the flexibility to accept or decline shifts. Upon conversion to permanent employment, there's a reduction in this flexibility, as they'll have fixed working hours.
• Casual loading: Casual employees typically receive a casual loading, which is a higher hourly rate to compensate for the lack of job security and paid leave entitlements. Converting to permanent employment means they'll lose this casual loading, which can be up to 25% of their pay. While they'll gain access to paid leave and potentially other benefits, the immediate reduction in hourly pay may feel like a drawback to some employees.
• Irregular work patterns: If the employee prefers the nature of casual shifts, they may find the set schedule of permanent employment to be less suitable for their lifestyle. Permanent employment requires consistent hours and predictability, which some casual employees may view as a loss of autonomy.

To prevent any misunderstandings, it’s important to document these discussions carefully, ensuring the employee fully understands the trade-offs. Proper documentation will also protect your business from future disputes or legal issues.

3. Responding to casual conversion requests

When a casual employee submits a request for conversion, in addition to the requirement to consult with them, you must provide an official response within 21 days. Your response must be in writing, either accepting the request or refusing it for clear, valid reasons. Valid reasons for refusal can include:

• The employee still meets the definition of a casual employee.
• Significant operational impacts, such as the need to reorganise work, hire additional staff, or reduce hours.
• Legal obligations that may prevent the conversion, such as award or agreement conditions.

If you accept the employee's casual conversion request, your response should include details on whether the employee will be converting to part-time employee or full-time employee status. It should also outline the employee's hours of work after the conversion, and when the change will take effect.

Having a clear audit trail for each decision ensures transparency and protection against potential legal claims.

4. Comply with transitional arrangements

For casual employees hired before 26 August 2024, you need to follow the transitional arrangements that allow these workers to access the old casual conversion system for six months (or 12 months for small businesses). Under the old rules, there was a requirement for you to initiate the offer of permanent employment to eligible casual employees after 12 months of service, provided they worked regular hours for at least the last six months.

During this transitional period, you’ll have to manage two systems: the old employer-driven casual conversion rules for those hired before 26 August 2024 and the new employee-driven system for those hired after that date. This adds an extra layer of complexity, so it’s important to put processes in place to track eligibility under both systems. By creating separate procedures for employees based on their hire date, you can streamline the process, ensuring no employees slip through the cracks and you handle all conversion requests correctly.

The importance of casual conversion compliance

Ensuring compliance with the upcoming casual conversion laws is essential. Here’s why it matters:

• Avoid financial penalties: Non-compliance with the Fair Work Act can lead to significant fines and legal costs, which can be financially burdensome for businesses.
• Prevent employee disputes: Failing to comply with casual conversion laws can result in disputes that may escalate to the Fair Work Commission, leading to potential backpay orders, compensation, or other costly legal outcomes.
• Maintain employee satisfaction: Respecting employee rights fosters engagement and loyalty. Non-compliance can lead to dissatisfaction, higher turnover rates, and lower productivity, impacting the overall morale of your workforce.
• Protect your reputation: Repeated breaches of employee rights can damage your company's reputation, making it harder to attract and retain top talent. Public disputes can also harm your brand image.
• Save time and resources: Dealing with legal disputes and employee dissatisfaction diverts time and resources from your core business operations. Staying compliant helps you avoid these disruptions and focus on business growth.

Manage the casual conversion process confidently with Rippling

Adapting to the new laws surrounding casual employment is essential for your business to stay compliant, avoid costly penalties, and maintain a satisfied workforce. With the increasing complexity of tracking employee eligibility, managing conversion requests, and staying on top of deadlines, the administrative burden can be overwhelming.

Rippling’s all-in-one platform simplifies this process by offering tools that help you stay compliant and manage casual employment transitions efficiently. With Rippling, you can:

• Automate compliance updates: Stay informed about the latest regulations with Rippling’s automated compliance tools, ensuring your policies are always up to date.
• Track employee eligibility: Monitor work patterns and service durations to identify which of your casual employees are eligible for casual conversion.
• Streamline conversion requests: Manage and respond to casual conversion requests promptly with automated workflows, reducing the risk of missing deadlines.
• Centralise employee information: Keep all employee data in one place, making it easier to manage and access information related to casual and permanent employment.
• Integrate HR and payroll systems: Ensure consistency and accuracy in employee status changes and compensation adjustments by seamlessly integrating your HR and payroll processes.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.