Are your employees covered by a modern award? If so, your business may soon be affected by the Fair Work Commission’s recent decision to make changes to annualised salary clauses.
In the most recent 4 yearly review of modern awards, the Fair Work Commission (FWC) has handed down a decision which will affect over 20 modern awards, by adding to or replacing existing annualised salary clauses within these awards. These clauses will take effect from 1 March 2020.
What is an annualised salary clause?
Certain modern awards include an annualised salary clause, which allows employers to implement an agreement with employees to pay them based on an annualised salary arrangement, rather than paying them wages based on the specific hours worked each week. An annualised salary agreement must still ensure employees are paid all minimum entitlements in satisfaction of the amount that would be payable under the relevant award, including but not limited to: minimum wage, overtime, allowances, penalties and loadings.
Why implement an annualised salary arrangement?
One of the key reasons employers may implement an annualised salary agreement is because it can provide flexibility and take some of the administrative headache out of paying employees. Rather than having to calculate wages payments in each pay cycle based on the specific hours worked and the relevant minimum amount owing, an annualised salary arrangement enables an annual salary to be calculated based on the hours expected to be worked during the year. This salary is to be paid in equal installments in each pay period throughout the year.
However, employers who currently have arrangements in place covered by a modern award with the new annualised salary clauses, will be required to comply with additional obligations in respect to notification, record keeping and wages reconciliations.
What are the important changes?
Changes to the current annualised salary clauses will require increased record keeping obligations for employers. The reason for these changes is to ensure employees are not disadvantaged by annualised salary agreements.
The new annualised salary clauses are broadly similar across the awards, however, there are some important differences, and therefore all employers should ensure they are across the detail which specifically apply to their employees.
One of the major differences is that an employee’s consent will be required to enter into an annualised salary arrangement under some awards, but not others. Those agreements that require consent will also allow either party to terminate the arrangement by providing 12 months’ written notice.
The key changes are as follows:
- Notification to Employees: The employer must advise the employees in writing of:
- the annualised salary payable to them;
- the award provisions which are satisfied by payment of the annualised salary;
- the method of calculating the annualised salary;
- the outer limit of ordinary hours, in a pay period or roster cycle under the award, that would otherwise attract payment of penalty rates; and
- the outer limit of overtime hours the employee may be required to work in a pay period or roster cycle without an entitlement to a payment in addition to the annualised salary.
- Payment for hours worked in excess of the identified outer limits: In addition to the annualised salary, the employer must pay employees, in accordance with award requirements in respect to overtime or penalty rates, for any hours worked in a roster or pay period which exceeds the identified outer limits.
- Annual Reconciliations: At the end of each 12 months from the commencement of the annualised salary arrangement (or upon the employees’ termination), the employer will have to calculate the remuneration that would have been owed to the employee under the award, based on their actual hours of work, and compare the annualised salary that has actually been paid. Where there is any shortfall, the employer must pay the outstanding amount within 14 days.
- Record Keeping: Employers must keep a record of start and finish times of all employees under an annualised salary arrangement, as well as any unpaid breaks. The employees must sign off or acknowledge in writing that the record is correct during each pay period or roster cycle.
Which awards are affected?
- Banking, Finance and 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 and Manufacturing Award 2010 (clerical employees only)
- Salt Industry Award 2010
- Telecommunications Services Award 2010
- Water Industry Award 2010
- Wool Storage, Sampling and Testing Award 2010
- Broadcasting and Recorded Entertainment Award 2010
- Local Government Industry Award 2010
- Manufacturing and Associated Industries and Occupations Award 2010
- Oil Refining and Manufacturing Award 2010 (non-clerical employees)
- Pharmacy Industry Award 2010
- Rail Industry Award 2010
- Horticulture Award
- Pastoral Award 2010
- Health Professionals Award 2010
- Marine Towage Award 2010
- Restaurant Industry Award 2010
- Hospitality Industry (General) Award 2010
What should you do to prepare for these changes?
It is important you become familiar with the specific provisions within the award(s) applying to your employees as soon as possible. You may need to spend some time preparing for these changes, such as implementing new processes or systems.
How do I find out more?
If you have any questions about the upcoming changes, or you would like specific support in managing annualised salary arrangements, please don’t hesitate to contact our HR consultants on 1300 675 393 or email [email protected].