CANBERRA, Sept 2 AAP - Employers and workers could be left worse off or face cost increases under award modernisation, the body responsible for this, the Australian Industrial Relations Commission (AIRC) has conceded.

The statement in a decision on Wednesday by a full bench of the AIRC flies in the face of repeated assurances from Workplace Relations Minister Julia Gillard that employers and workers would not be disadvantaged as a result of the process.

It said the government's requirement of no disadvantage to either workers or employers were "objectives which are potentially competing."

The AIRC has decided the transition to modern awards should take place over five years with phased-in changes, whether an increase or decrease in wages and conditions, every 12 months and beginning in July 2010.

Areas subject to phasing-in include minimum wages, training arrangements, and employees with a disability, casual and part-time loadings, penalty rates and shift allowances.

Fair Work Australia, which will replace the AIRC in January, will have the power to review transitional arrangements.

Early last year Ms Gillard requested the AIRC begin the modernisation of around 4,000 state and federal industrial awards into 130 national modern awards.

The task is due to be completed by January 1 when the new national employment standards come into force but unions and employers in several industries have complained they will be left worse off.

Their concerns have forced Ms Gillard to write to the AIRC seeking a variation to her original request on seven occasions.

Ms Gillard is currently away in India.

In her place Acting Workplace Relations Minister Mark Arbib said the government was pleased the AIRC had decided to make full use of the five-year transition to modern awards in yearly instalments.

"The government is on track to deliver a profound reform for Australian employers and employees that had defeated governments for several decades," Senator Arbib said.

Even with the transitional arrangements, the Australian Chamber of Commerce and Industry (ACCI) say the new awards will have "a considerable sting" for many employers traditionally covered by state awards.

"Recognition by the tribunal that current economic conditions warrant a cautious approach in making new awards is welcome," ACCI chief executive Peter Anderson said in a statement.

But he said the commission's conclusion that "cost increases are in prospect" will disappoint employers who relied on government assurances.

The Australian Industry Group's (AiGroup) chief executive, Heather Ridout, said transitional provisions were "sensible", allowing a transition period up to 2014 giving employer’s time to prepare.

"The commission has rightly rejected the unions' proposal to preserve each and every more generous existing award entitlement, which AiGroup strongly opposed as unworkable," Ms Ridout said.

ACTU president Sharon Burrow said it was disappointing that low paid workers would have to wait five years before they benefited from improved wages.

"We are indeed a little concerned that it's not clear whether or not the application to workers allowances and other job conditions will be penalised or not," Ms Burrow told ABC Radio on Wednesday.

Federal Opposition workplace relations spokesman Michael Keenan says the AIRC's comments that there will be some disadvantage shows Labor's promises about modern awards are "flawed".

"This process has been bungled and botched from day one - there was simply no way Julia Gillard's promise to workers and business was realistic - a view confirmed today by a full bench of the industrial umpire," Mr Keenan said.

The AIRC said the introduction of modern awards applying across the private sector, merging an array of different rates of pay and conditions "inevitably means some conditions will change in some states".

"... it is clear that some award conditions will increase leading to cost increases and others will decrease leading to potential disadvantage for employees, depending upon the current award coverage," the AIRC said.