Annualised salary changes to some Awards – is your business prepared?

In the wake of the alarmingly increasing number of employers being found to have underpaid their employees, the Fair Work Commission (FCW), has made a decision to change the annualised salary arrangements contained in 19 Awards and to insert an annualised wage clause in 3 additional Awards. These changes take effect from 1 March 2020, so if you currently use annualised salary arrangements under an Award, you need to be prepared for the new requirements.

Importantly, these changes only apply when an employer specifically applies the annualised terms of an Award. They do not change the existing common law arrangements whereby a carefully drafted offset clause inserted into a contract of employment enables the same or very similar outcome as an annualised salary arrangement. However, employers are cautioned that even when using an offset clause, accurate records of working hours should be kept to enable the employer to prove (if challenged) that an employee was paid all of their Award entitlements.

Although there are 3 model clauses that the FWC has inserted into the various Awards, all of these clauses require the employer to:

• Keep a record of time worked including starting and finish time and any unpaid breaks. Employees must sign off on the hours as being accurate for each pay/roster cycle.
• Advise the employee of the provisions of the Award which are satisfied by the annualised wage.
• Document the method by which the annualised salary has been calculated. This includes specifying each separate component of the annualised salary and any overtime and/ or penalty rate assumptions used in the calculation of the annualised salary.
• Document and advise the employee what the ‘outer limits’ are on the number of overtime hours or other penalty-rate hours which are intended to be satisfied by the annual salary. The employer must pay the employee in accordance with the Award for any hours they work which exceed those ‘outer limits.’ These payments must be made in the next pay cycle.
• Undertake an annual reconciliation of the employee’s salary by working out what they should have been paid under the Award and comparing that with what they were actually paid. If the employer identifies a shortfall, they must rectify this within 14 business days.

The specific provisions applying to each Award are set out below. Importantly, those Awards in Category 1 only allow an employer to decide to annualise a salary without the agreement of the employee.

At this stage, the annualised salary provisions only apply to full time employees.

Affected Awards

If you need additional assistance determining if your business will be affected by these changes, or you would like to discuss options to achieve flexibility in the hours of work for your employees, we can assist you. Please contact us on mazarshr@mazars.com.au or 07 3218 3919.As noted above, these provisions only impact employers who are using the annualised arrangements under an affected Award. Employers are under no obligation to use these provisions and can elect to continue to use or introduce offset arrangements as an alternative.

Published: 20 February 2020

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.