Court clarifies annual salary rules

Court clarifies annual salary rules

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Court clarifies annual salary rules

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 For many years, businesses have been paying people on an annualised salary basis using set off clauses in common law contracts to compensate for and set off monetary award entitlements against over award remuneration.  And, a long as people ended up better off overall than they would have been if the award was applied literally, that all seemed fair enough but is it? The Federal Court begs to differ. So what does that all mean?

 

About this case

This decision by the Federal Court arose from proceedings initiated by the Fair Work Ombudsman and a class action for employees in relation to alleged underpayment of wages by Coles and Woolworths. 

At issue was the question of over how long a period could an employer rely on a set-off provision in an employment contract to effect set-off of and compensation for award entitlements such as minimum wages, allowances, overtime and shift loadings and penalty rates.

In Coles case, the relevant period in the contract was 12 months and in Woolworths it was 6 months. 

There have been cases in the Fair Work Commission where annualised wage arrangements have been inserted in modern awards but the door had always been left open in the related decisions for another gateway via common law contracts.

The General Retail Industry Award 2020 which applies in this case doesn’t have an Annualised Wage Arrangements clause but it is quite specific on this issue in that it states: “Wages must be paid for a pay period according to the number of hours worked by the employee in the period or they may be averaged over a fortnight”. This “averaging” element is consistent with other arrangements across different industries where RDOs and averaging of wages is commonplace.

The judge in this case made the decision that employees have to be paid for hours in the pay period in which they worked them. That invalidated the arrangements that Coles and Woolworths relied on for people to work additional hours in some pay periods and set off the overtime and penalty payments applying to those hours against above award remuneration on other pay periods for up to 6 or 12 months.

So they now each have another considerable set of underpayments of wages to deal with, something that unfortunately happens far too often. 

Record keeping requirements 

A secondary issue that arose was in relation to Coles and Woolworths being found to have not complied with their record keeping obligations.

Specifically, Fair Work Regulations provide that an employer must maintain records of overtime hours worked and the starting and finishing times of overtime hours if a penalty rate of loading applies to those hours.

 It is quite common for people to believe that, if you are on salary, you don’t have to record your working hours. The judge made it clear that having a set-off clause does not exempt employers from other obligations under legislation and regulations and so Coles and Woolworths were obliged to maintain these overtime records and were in breach for not doing so.

The judge’s decision in this regard is consistent with Annual Wage Arrangement clauses where they exist in modern awards in that they require the keeping of records of starting and finishing times and breaks and annual reconciliations of actual hours and remuneration against what entitlements under the award would otherwise have been (ie but for the Annualised Wage Arrangement).

The decision also puts the two employers in a difficult situation in resolving underpayment claims if they don’t have clear records of the days and times that relevant employees actually worked pay period by pay period.

Other considerations

 Firstly, I would note that these major retailers have been trying to find a way around penalty rates for many years going back to WorkChoices which preceded the Fair Work era. The issue resurfaced again recently when employers made application to the Fair Work Commission to have the General Retail Industry Award 2020 varied to provide for a standard loading on minimum rates in compensation for overtime loadings and penalty rates.

The Albanese Government responded with a commitment to outlaw removal of overtime loadings and penalty rates from modern awards by legislation from 1 July 2026.

So the wagons really are circling around these entitlements in government, in the courts and in modern awards.

What do we learn from all of that? 

A few thoughts:

  1. You need to ensure that, if an employee is covered by a modern award or an enterprise agreement, the employee receives their full entitlement to wages, allowances, penalty rates and overtime loadings and any other monetary benefit as per that instrument in every pay period (subject to any averaging arrangement or other variation allowed for in the instrument).
  2. If there is significant variation in different pay periods in the hours of work of an employee who is on an annualised salary (or flat weekly or fortnightly or monthly wage), it is critical that you maintain records of the hours and do the reconciliations to ensure that the employee is not disadvantaged and that you have the evidence to support your position in the event of an underpayment claim.
  3. If you are using set-off clauses in common law contracts, you need to get these reviewed in the context of this decision and the difference that makes in their legal application.
  4. There are a variety of reasons why it is good practice to have accurate records of your employees’ actual (as opposed to notional or contractual) working hours, some of which are legal ones like the ones that have been cited in this case. So, if you aren’t doing that, it is something for you to look at.
  5. You might also find that it is just as easy to pay people an hourly rate and comply with the award in relation to additional payments for extra hours as and when those situations arise.

If you need someone to talk through the issues and options for your business, we would be happy to help.

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance with any issues like this in your business.

 

 

 

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Your consultation obligations and AI

Your consultation obligations and AI

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Your consultation obligations and AI

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We have been hearing a lot about the uptake of AI by corporations to automate tasks and reduce labour requirements with concerns about the loss of human job opportunities very much on the rise and the ACTU has called for special arrangements for consultation with workers on prospective implementation of artificial intelligence tools in their businesses……but are they needed?  

 

Consultation about major workplace change

Perhaps not?

You see all modern awards and enterprise agreements have consultation clauses which provide that, If an employer makes a definite decision to make major changes in production, program, organisation, structure or technology that are likely to have significant effects on employees, the employer has certain obligations. Here is what the Clerks – Private Sector Award 2020 says that the employer must do: 

(a) give notice of the changes to all employees who may be affected by them and their representatives (if any); and

(b) discuss with affected employees and their representatives (if any):

(i) the introduction of the changes; and

(ii) their likely effect on employees; and

(iii) measures to avoid or reduce the adverse effects of the changes on employees; and

(c) commence discussions as soon as practicable after a definite decision has been made.

38.2 For the purposes of the discussion under clause 38.1(b) , the employer must give in writing to the affected employees and their representatives (if any) all relevant information about the changes including:

(a) their nature; and

(b) their expected effect on employees; and

(c) any other matters likely to affect employees.

38.3 Clause 38.2 does not require an employer to disclose any confidential information if its disclosure would be contrary to the employer’s interests.

38.4 The employer must promptly consider any matters raised by the employees or their representatives about the changes in the course of the discussion under clause  38.1(b) .

38.5 In clause 38 significant effects , on employees, includes any of the following:

(a) termination of employment; or

(b) major changes in the composition, operation or size of the employer’s workforce or in the skills required; or

(c) loss of, or reduction in, job or promotion opportunities; or

(d) loss of, or reduction in, job tenure; or

(e) alteration of hours of work; or

(f) the need for employees to be retrained or transferred to other work or locations; or

(g) job restructuring.

What happens if an employer does not consult or comply with the clause

Because it is a matter that is in the award, it is subject to the disputes settlement procedure in the award and accordingly employees and/or unions could lodge disputes with the Fair Work Commission for conciliation or arbitration of such a dispute.

What it all means

Firstly, let’s be clear, regardless of how you contract them, most employees have award coverage and therefore award consultation provisions will apply to most workers, especially those below executive and professional levels (although some awards cover some of them too).

So, if you are introducing changes with AI that will have an impact on jobs or roles or training or the other elements mentioned in the award clauses, start with what your award obligations say.

Secondly, be proactive and make a sound business case for what you are proposing to do and, if you can, engage your people in the design and change management process.

Thirdly, try to find ways to mitigate the effects for people through retraining, redeployment, redesign of jobs and other creative paths. Maybe there can be a bit of job crafting around life balance for some people. Maybe there is someone who would like to retire but needs some support to do that. It isn’t one size fits all but you do need to be fair.

Fourthly, keep it honest and transparent with frequent and open communication…..with compassion.

Fifthly, make it a positive experience for people and find milestones and reasons to celebrate along the way.

Finally, managing change is complicated in psychology and process, in effectiveness and from a legal perspective. Get someone who know how to do this stuff well and progressively to help you. 

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance with any issues like this in your business.

 

 

 

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Is the sky falling on salaries?

Is the sky falling on salaries?

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Is the sky falling on salaries?

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There has been a lot of noise from employer bodies and conservative media about the Albanese government’s decision to legislate protections of penalty rates and overtime loadings but will it really mean the end of salaries as we know them and will that mean reduced flexibility and productivity as they claim? 

The issue

The Fair Work Amendment (Protecting Penalty and Overtime Rates) Bill 2025 was introduced to Parliament last week.

It proposes amendments which would have the effect of:

  • ensuring that the specified penalty or overtime rates in modern awards cannot be reduced; and
  • closing loopholes in the modern awards safety net that allow employers to “roll up” penalty and overtime rates into a single rate of pay that doesn’t fairly compensate award-reliant employees for remuneration they would have otherwise received.

The employer reaction

A couple of headlines about the federal government legislation to protect penalty rates caught my eye:

– HR Daily: “Penalty rates Bill a “backwards step” for employers”; and
– Dynamic Business: “Labor blocks business flexibility with new penalty rate laws”

Sounds like life will get tougher for employers, doesn’t it?

The truth

No, it won’t……..other than for businesses which were planning on reducing costs by reducing workers’ wages via cuts in penalty and overtime rates.  

Employers are already required by law to ensure employees are paid at least what they would be entitled to under any applicable industrial instrument ie a modern award or enterprise agreement.  

That includes penalty rates and overtime loadings. You can’t contract out of them but you can repackage them in individual flexibility agreements, common law contracts or enterprise agreements provided that employees are better off financially than they would be if the award was literally applied.

The amendment actually notes that it is about: “a single rate that doesn’t fairly compensate award-reliant employees for remuneration they would have otherwise received.” So it is saying you can’t pay people less than they would be entitled to under all of the monetary provisions of the award that covers them.

The explanatory memorandum to the bill also states that individual flexibility agreements and enterprise agreements are still available for compensating for setting off entitlements like overtime and penalty rates subject to satisfaction of the Better Off Overall Test ie the employee has to be better off under the agreement.

What it all means

This has been triggered by an application from an employer association to have an award varied to allow for exclusion of penalty and overtime rates via a flat fixed overboard payment.

Sadly, there are countless cases of employers underpaying workers by implementing just these sorts of arrangements via contracts or agreements which do not adequately compensate them based on the work that they do, when they do it and the conditions in which they do it.

This legislation will just make the obvious obligations that employers already have irrefutable and strengthen the case of wage theft prosecutions for employers who don’t comply.

It won’t reduce flexibility or productivity – it will just preserve what are already legal rights but it will be legislatively explicit now. 

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance with any issues like this in your business.

 

 

 

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Changing the mindset on flexible working

Changing the mindset on flexible working

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Changing the mindset on flexible working

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Is it possible for the parties to the current proceedings in the Fair Work Commission re a model working from home term in modern awards to do other than treat it as a contest between employers and workers?

Sadly, the answer is “no”. Our workplace relations system is designed to be driven by conflict –  by claims and counter claims by employer associations and unions based on opposing ideologies and traditional and political views on how they should represent their constituents in industrial proceedings.

And the Fair Work Commission itself and its members are firmly positioned as the arbiters in that contest as is intended under the Fair Work Act 2009.

What all of that means is that our systems and the positioning of the key parties involved are not conducive to collaboration or to partnering in long-term strategic change. Every case is a transaction in conflict and that is one of the reasons why we have a productivity problem in this country.

So how is that going to deal effectively with issues like “working from home”?

The irony

The COVID pandemic changed the landscape completely because lots of people were not allowed to go to work – they had to work from home if they were going to work at all.

Those circumstances gave rise to some innovative changes to award provisions which allowed employers and employees some additional flexibilities around arrangements with hours of work and use of leave entitlements.

These included temporary options of:

  • varying ordinary hours to operate up to 10.00 pm enabling people to arrange their working hours around their parenting responsibilities and
  • employees being able to schedule their meal and rest breaks to times that suited them rather than the specific times prescribed in the award and
  • being able to utilise annual leave to cover more time off work but at a proportionately reduced pay rate 

Of course, once the COVID lockdowns were over, these flexibilities were removed from awards without any real consideration of whether there might be a case for retaining them.

That was a pity and an opportunity missed because the pandemic lockdowns gave employees the experience of working from home and many liked it and that fundamentally changed how we think about work as part of life. 

So what now?

The Fair Work Commission was tasked last year with undertaking a “Work and Care” review of modern awards and the consideration of “working from home terms in modern awards” is a step in that process.

It is being reported that, as we move further on in time from the pandemic closedown period, more and more employers are demanding more and more workers to return to the office – in some cases full-time and in others for typically 2 or 3 days per week.

The flip side to that is that study after study shows that a majority of people want some flexibility in their working arrangements and, for those whose jobs can be done from home, that is commonly desirable for them. It has become a sought after attribute in employers’ offerings to the labour market.

If you believe the media, employer groups are now advocating the abolition of penalty rates in return for flexibility in hours of work, something which the Federal Government has already pledged to override by protecting penalty rates through legislative change.

It is a bit of a mystery why we don’t simply revisit how the FWC dealt with working from home arrangements during the pandemic – they did do some practical things that seemed to work like allowing an employee and employer to agree to an arrangement of ordinary working hours outside the span of hours in the Award where an employee wants that and the employer is happy to accommodate it. Sure, you might need to make some adjustments to protocols around the right to disconnect in the individual’s case but it really shouldn’t be that hard. 

Some employees have a statutory right to request a flexible working arrangement

Employers now have additional obligations and exposures in relation to requests for flexible working arrangements for workers who have a statutory right to request a flexible working arrangement. These are people who have 12 months service with an employer and:

The odds are that many of your employees fit under one or more of those categories.

Employers now have to genuinely consider and consult with workers about requests for flexible working arrangements, there are strict procedural requirements and timelines involved and a worker who is not happy with an employer’s refusal of their request can take the matter to the Fair Work Commission for mediation, conciliation or arbitration. 

Awards have already been modified to specifically provide for disputes over requests for flexible working arrangements to be dealt with in accordance with dispute settlement provisions in awards.

One of the concerns that employers could have is whether insertion of a working from home clause in Awards would result in in expansion of the right to have a dispute with an employer dealt with by the Fair Work Commission to all award-covered employees rather than just those in the categories that have a statutory right as noted above. Logically, it would have that effect.

So what does all of this mean?

Flexible working and working from home are here to stay.

Employers who continue to resist that will find themselves not just challenged to find and retain the people that they need in a competitive labour market where flexible working is a valued commodity, but will also likely be challenged in the FWC and possibly other jurisdictions to justify that resistance on “reasonable business grounds”.

There are organisations which are more than happy to offer flexible working arrangements because they see the value in them for employees, they equip their organisations with the tools and leadership skills to manage people in those flexible arrangements, they hold people accountable for their performance and behaviour and they actually see improvements in productivity. That is what the future workplace should look like.

So the question that you need to answer for your business is “Do you really want to engage in a tug of war that you can’t win?” 

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance.

 

 

 

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Ridgeline Human Resources Pty Ltd
ABN : 24 091 644 094

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Annual Wage Review 2025 decision announced

Annual Wage Review 2025 decision announced

Latest News & Events

Annual Wage Review 2025 decision announced

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The Fair Work Commission has announced the Annual Wage Review 2025 decision which is to increase the minimum wage and award wages by 3.5% from 1 July 2025. 

No surprise here

This is just what we predicted – not a hard one given that the ACTU asked for 4.5% and the employer associations responded with 2.5% – made it easy for the FWC to just split the difference.

What to do

Check your employment contracts and enterprise agreement to see what they say about award wage increases, whether they flow on to employees and whether they can be absorbed against overboard payments.

If you haven’t had your contracts reviewed for a while, it could be an opportune time to get them looked at.

A caution

There have been a huge number of changes to employment laws and modern awards in recent years so make sure that you get this stuff right.

With the advent of the new criminal offence of wage theft from 1 January 2025 and the massive increases in penalties for breaches, getting it wrong can be very costly. Even the lowest tier for record keeping and payslip breaches can be as much as $1,980 per breach for an individual and $9,900 per breach for a company. At the most serious level, they could be over $8,000,000 for a company.

Conclusion

No employer can afford to not have someone who they can rely on to provide them with the right advice on their wage and other employer obligations, whether that be through an internal HR resource, membership of an employer or industry association which provides such a service or through appropriately experienced and knowledgeable employment lawyers or workplace relations consultants like us.

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance.

 

 

 

CONTACT US

Ridgeline Human Resources Pty Ltd
ABN : 24 091 644 094

enquiries@ridgelinehr.com.au

0438 533 311

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FWO publishes underpayment remediation guide

FWO publishes underpayment remediation guide

Latest News & Events

FWO publishes underpayment remediation guide

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We have one of the most complicated systems of employment and wages regulation in the world and we now have a criminal offence of wage theft and greatly increased civil penalties that you can be sanctioned with if you get it wrong. So what do you need to do to get it right? Or to fix it if you make a mistake. 

Important heads up

If you make an innocent mistake, you are not going to be prosecuted for wage theft as long as you do the right thing and fix it and you put in place what you need to so as to make sure it doesn’t happen again.

However, there are substantial civil penalties for non-compliance with Fair Work requirements re wages and entitlements and it has been made very clear that “I didn’t know” is not going to be tolerated by the Fair Work Ombudsman as an excuse.

It also becomes a matter of public record and that can be extremely damaging to your brand both as a business and as an employer.

Two important guides

The Fair Work Ombudsman has published two really valuable guides for employers:

  • A Guide to paying employees correctly and the Voluntary Small Business Compliance Code sets out 5 key areas for business with less than 15 employees to attend to and protect themselves from the risk of prosecution for wage theft – part of that is ensuring that you have someone internally or externally who can provide you with competent advice on Fair Work, minimum wages, modern awards, record keeping requirements and more;
  • Their Payroll Remediation Program Guide sets out in great detail what they expect employers who have found themselves to be in an underpayment of wages situation to do – it does run to 42 pages so you might want someone who knows this stuff to give you the short version of it

What are the penalties?

They can be huge – even the lowest tier for record keeping and payslip breaches can be as much as $1,980 per breach for an individual and $9,900 per breach for a company. At the most serious level, they could be over $8,000,000 for a company.

Conclusion

No employer can afford to not have someone who they can rely on to provide them with the right advice on their wage and other employer obligations, whether that be through an internal HR resource, membership of an employer or industry association membership which provides such a service or through appropriately experienced and knowledgeable employment lawyers or workplace relations consultants like us.

Please call us on 0438 533 311 or email enquiries@ridgelinehr.com.au if you want to explore how we might be of assistance.

 

 

 

CONTACT US

Ridgeline Human Resources Pty Ltd
ABN : 24 091 644 094

enquiries@ridgelinehr.com.au

0438 533 311

PARTNER LINKS

TELL US WHAT YOU NEED HELP WITH