It has become popular for employers to pay an annualised salary to award-covered employees. An annualised salary will typically compensate the employee for all payments they would otherwise be entitled to under an award – such as wages, overtime, penalties and allowances.
In broad terms, annualised salary arrangements have been entirely legal – so long as they are properly documented in an employment contract and the employee is financially better off as compared to a strict application of the award.
However, important changes to 21 modern awards may see the annualised salaries lose some of their gloss for employers.
The following awards have been varied by the Fair Work Commission and come into effect on 1 March 2020:
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
Amendments to annualised salary arrangements
The amendments will place onerous obligations on employers who remunerate employees by way of annualised salaries. The changes differ depending on the award that covers the employee as the amendments are designed to meet the specific needs to the industry.
The amendments require employers to:
keep a record of and provide information to employees about the annualised salary including:
the salary that is payable (i.e. the amount));
which provisions of the award are satisfied by the salary;
the method of calculation used to determine the salary; and
the outer limit of hours (including overtime and penalties) that can be worked by the employee before exhausting the salary and requiring additional payment;
pay employees for all additional hours worked that are not compensated for by the salary;
keep records of the start, finish and break times and have these records signed by the employee; and
conduct annual reconciliations and reconciliations upon termination of employment to ensure that the salary properly compensated the employee for all award entitlements.
For certain awards (marked with an asterisk above), the amendments also including requiring employers to:
obtain consent from employees to enter into an annualised salary;
calculate the salary in a certain way (e.g. at least 25% above the minimum wage); and
ensure that rosters do not require an employee to work additional hours (including overtime and penalties) that are not compensated for by the salary.
The amendments are the result of a three-year consultation process with industry groups, unions and employer associations.
Preparation for the Amendments
Employers who pay annualised salaries should obtain advice about:
what amendments have been made to awards that cover your employees;
how these amendments will impact current and future annualised salary arrangements;
whether your employment agreements and / or salaries require updating;
whether your business is exposed to an underpayment claim by paying annualised salaries;
whether your business is protected by an offset clause in an employment agreement; and
how best to implement the new obligations imposed by the amendments, including notifying employees prior to the annualised salary provisions coming into effect on 1 March 2020.
Alternatively, some employers may wish to cease paying annualised salaries due to the increased administration obligations.
Please contact us if you would like to seek further information or tailed advice about these amendments.
Jasmine O'Brien
Principal
T +61 3 9611 0149 l M +61 401 926 108
E: jobrien@sladen.com.au
Gemma Carroll
Lawyer
T +61 3 9611 0158
gcarroll@sladen.com.au
