So you think it is OK just to give your receptionist or your para planner or your chef or your …..  a standard weekly, fortnightly or monthly pay or an annualised salary regardless of the hours that they work? You pay above award so that’s OK, right? Well…….maybe.

We know that one of the main reasons that employers like to have fixed wage or annualised salary arrangements is for simplicity in administration. Another is to offer a higher overall package than just award rates and conditions. Employees also get the benefit of superannuation guarantee contributions on the higher annualised wage or salary. So it can be a positive all round.

We also know that there have been a number of high profile cases where workers have been grossly underpaid because annualised wage arrangements left them much worse off than they would be under award conditions.

Unfortunately, for those who have been doing the right thing, it appears that you will also have to pick up an extra administrative workload in entering into and reviewing annualised wage/salary arrangements if you are to be compliant with the relevant award.

The Fair Work Commission recently decided to vary 21 Modern Awards to provide annualised wage provisions that will come into operation on 1 March 2020. These variations impose significantly increased obligations on employers entering into annualised wage arrangements with employees.

The new award clauses provide that an employer can have an annualised wage arrangement with an employee on the following terms:

  1. The annualised wage can compensate for and set off specific award provisions namely minimum weekly wages, allowances, overtime penalty rates, weekend and other penalty rates and annual leave loading;
  2. There must be written advice to the employee of the annual wage arrangement
  3. The employer must maintain a record of the annualised wage that is payable, which provisions of the award will be satisfied by the annualised wage, how it has been calculated with details on each separate component and any assumptions on overtime or penalties that have been used in the calculations
  4. The outer limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage
  5. If in a pay period or roster cycle an employee works any hours in excess of those outer limit amounts, such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of the award.
  6. The annualised wage must be no less than the amount the employee would have received under the award for the work performed over the year for which the wage is paid (or if the employment ceases earlier over such lesser period as has been worked)
  7. The employer must each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee calculate the amount of remuneration that would have been payable to the employee under the provisions of the award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.
  8. The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking that comparison.  This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.

The affected awards are:

  • Banking, Finance and Insurance Award 2010
  • Broadcasting and Recorded Entertainment Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Horticulture Award 2010
  • Hospitality Industry (General) Award*
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Marine Towage Award 2010*
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010
  • Pastoral Award 2010
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Restaurant Industry Award 2010*
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

Note: those awards with an * have industry specific provisions.

Interestingly, the FWC decision also includes this statement: “Employers may, pursuant to private contractual arrangements, pay employees in accordance with a salary arrangement that compensates for or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award.” If the Fair Work Ombudsman comes calling, I wouldn’t be relying on that statement as a defence because, even if you use a common law contract, you still can’t pay someone less than they would get under all relevant award conditions. There is also now a reverse onus of proof on employers to prove that they have not underpaid a worker so you need the evidence (ie the records of hours worked etc) in any case.

So what does that all mean if you use employment contracts in lieu of strictly applying the award? At a minimum, you should do three things:

  1. Review your employment contracts to ensure that they have appropriate provisions to deal with award setoff and compensation (and, if you don’t have formal tailored employment contracts/agreements, get them)
  2. Have a process for regularly (at least annually) verifying that annualised salary/wage arrangements are adequate to ensure that the employee is better off overall than under award conditions
  3. Have a process for monitoring and managing hours of work and rosters to ensure that employees do not get into a situation where (at any point in time) they are not better off overall than they would be under the award rates and conditions.

If you need advice or assistance with any of the above, please contact us