Employers paying annualised salaries under a modern award, or those wishing to do so, take note!

Significant changes to the calculation and reconciliation of annualised salaries will commence from 1 March 2020.

New annualised salary requirements under modern awards

The new requirements are onerous and may have some employers wondering whether it’s worth the pain.

21 awards allowing for annualised salaries have been grouped into three categories (see table below) with a standard annualised salary clause drafted for each category.
All 21 awards will require in writing:
– The clauses of the award covered by the annualised salary
– The way the salary has been calculated
– The ‘outer limit’ number of overtime and/or penalty rate hours included in the salary
– Any hours outside the ‘outer limit’ to be paid separately and within the pay period
– A record of start times and unpaid break times
– An employee’s signature on each pay period record
Specific requirements include:
– Category 2 and 3 awards require employee agreement (no agreement is needed to pay a category 1 annualised salary).
– Category 3 awards specify a minimum annualised salary and ‘outer limit’ overtime and/or penalty rate hours. For example, the draft Restaurant Industry Award clause provides that an annualised wage must be ‘at least 25% above the minimum award wage’ and employees cannot work more than an average of 16 penalty rate or 10 overtime hours, without payment over and above the annualised wage. These clauses are still being finalised and category 3 awards will commence after 1 March 2020 on a date to be set.

Employers must undertake an annual reconciliation to ensure the payment is no less than what the employee otherwise would have been entitled to under the award, and pay any shortfall within 14 days.

Employers paying annualised salaries still need to ensure they comply with all other provisions in the award relating to breaks, rostering etc.

Employers failing to comply with the new changes risk underpayment claims and prosecutions and penalties under the FW Act for breaching a modern award.

Category 1

Banking, Finance & Insurance Award 2010
Clerks – Private Sector Award 2010
Contract Call Centres Award 2010
Hydrocarbons Industry (upstream) Award 2010
Legal Services Award 2010
Mining Industry Award 2010
Oil Refining & Manufacturing Award 2010
Salt Industry Award 2010
Telecommunications Services Award 2010
Water Industry Award 2010
Wool Storage, Sampling & Testing Award 2010

Category 2

Broadcasting and Recorded Entertainment Award
Horticulture Award 2010
Local Government Industry Award
Manufacturing and Associated Industries and Occupations Award 2010
Pharmacy Industry Award 2010
Rail Industry Award 2010
Pastoral Award 2010

Category 3

Hospitality Industry (General) Award 2010
Marine Towage Award 2010
Restaurant Industry Award 2010

Common law set-off clauses

It is important to point out that many employers pay annualised salaries in accordance with a set-off clause in a common law employment contract (as opposed to a modern award annualised salary clause).

The Fair Work Commission indicated this is still open to employers, however, expressed a view that an annualised salary under an award may be a more reliable and legally certain option for employers.

Potential issues in respect of common law based annualised salaries include potential award breaches for paying an employee for fewer hours than s/he works in a pay period (even though the employee will be compensated for that underpayment in following months). This is a bigger risk with a seasonal workforce which may be underpaid over a series of months before being compensated for hours already worked.

Employers can also run into trouble with poorly drafted set off clauses that fail to clearly specify the entitlements covered by the annualised wage.

CIE Legal’s Human Resources Law and Strategy team regularly assists businesses with issues involving modern award compliance including the payment of annualised salaries so please get in touch if you would like assistance in this area.

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