It's reasonably common for employers to choose to pay some of their employees annualised salaries in an effort to incorporate a range of Award provisions such as overtime, leave loading and penalty rates. There are a number of Awards that include specific provisions for these types of arrangements, and such arrangements are often also applied to employees not covered by an Award.
Recently, the Fair Work Commission reviewed a number of Awards and incorporated provisions relevant to annualised salaries into a broader range of Awards than was previously the case. The Commission has also taken the opportunity to expand and "tighten" relevant Award provisions.
As a result, key obligations for employers with employees covered by relevant Awards receiving an annual salary have changed.
Awards impacted by these changes include the following (note that this list is not exhaustive):
- Clerks Private Sector Award
- Banking, Finance and Insurance Award
- Legal Services Award
- Local Government Industry Award
- Manufacturing and Associated Industries and Occupations Award
- Pharmacy Industry Award
- Telecommunications Services Award
The new obligations for employers with employees covered by the relevant Awards commenced from the first full pay period on or after 1 March 2020 (note that changes to other awards, including the Hospitality Industry Award and the Restaurant Industry Award have been "flagged", though no date for variations to those awards has been set at this stage).
So what are the new obligations?
While the specific wording in each Award can differ (and should therefore be reviewed closely), the provisions generally require employers to, in the case of an employee covered by the Award and receiving an annual salary:
- notify employees of the specific Award provisions that are satisfied by the annualised wage
- notify employees of how the annualised wage has been calculated, including the components and assumptions about overtime and penalties that have been included
- specify the outer limit of overtime hours before the employee is entitled to be paid additional amounts (and ensure employees are paid for any hours in excess of the outer limit), and
- keep records of each employee's start and finish times and unpaid meal breaks (and ensure a process for the employee to sign off on the records at the end of each roster or pay cycle).
Employers are generally also required to conduct a reconciliation at the end of each 12 month period (and/or when the arrangement or employment ends), to compare the annual salary paid to the employee's Award entitlements for actual hours and days worked over the period. If the amount paid in the annualised salary is less than the Award would have provided, any shortfall amount must be paid to the employee within 14 days.
Specific Awards may also require the employee and employer to formally agree to the arrangements.
Employers paying annualised salaries to employees covered by the designated Awards should take immediate steps to ensure compliance with the new requirements.
While the new requirements currently apply to designated Awards, it's anticipated that relevant provisions in at least some other Awards will be extended and/or "tightened up" over time. It's our view that employers should therefore take prompt steps to confirm that any employees on annual salary arrangements (whether award-covered or not), are receiving an annual salary that covers all of their minimum entitlements, and that associated contracts appropriately reflect the arrangements in place.
Further information relating to this issue is available on the Fair Work website – refer here, and of course, let us know if you need assistance.
This article is current at the time of writing, provides general information only and may not apply in all cases. This information should not be regarded as legal advice. If you are unsure of requirements, you should seek support.