On 1 March 2020, new annualised salary clauses will come into effect across a number of modern awards (capturing multiple industries). This follows the recent four-yearly review by the Fair Work Commission into modern awards, which largely revolved around the reliability of annualised salary arrangements (following several high-profile cases of underpayments, including Made Establishment, run by George Calombaris and Woolworths, to name a few).

What is an annualised salary?

Several modern awards under the Fair Work system include annualised salary clauses, that allow employers to fix an annual wage in satisfaction of various award entitlements (i.e. minimum weekly wages, overtime, penalty rates, etc). Prior to 1 March 2020, these annualised salary clauses were relatively straight-forward and easy to comply with. However, that will all change when the new clauses come into effect.

What does this mean for my business?

If you have employees covered by a modern award, these annualised salary clauses may apply to you. Not all modern awards contain these clauses, however it is important to ensure you comply with the new regime if you already pay an annualised salary or are thinking about using annualised wages for your employees.

There are several key changes to the annualised salary provisions, which will come into effect on 1 March 2020. These are considered to be quite onerous for employers and include a number of administrative requirements and record keeping activities that must be complied with. For example, the employer must now advise the employee in writing and keep a record of the annualised wage to be paid, the provisions of the award to be satisfied by the annualised wage, the method by which the wage is calculated, the outer limit number of ordinary hours which would attract payment of penalty rates and the outer limit of overtime hours which the employee may be required to work.

As you can see, the employer’s record-keeping obligations are considerable, and this is only the beginning!

If an employee works hours in excess of either of the outer limits specified above (during a pay period or roster cycle), those hours are not covered by the annualised wage and must be paid separately in accordance with the applicable award provisions (i.e. on top of the annualised wage). Furthermore, every 12 months following the commencement of the annualised wage arrangement (or upon termination of employment), the employer must calculate remuneration payable under the award and compare it to the annualised wage actually paid to the employee. Any shortfall must be rectified by the employer within 14 days.

And if all the above was not enough, the employer must also keep a record of the start and finish times (including unpaid breaks taken) for each employee who is on an annualised salary arrangement. This record must be signed by the employee or acknowledged in writing as being correct during each pay period or roster cycle.

Employers may also choose to include a ‘set-off clause’ into their common law contracts, which operates in much the same way as the modern award requirements. However, there are specific requirements that employers must follow in drafting a set-off provision that complies with the relevant employment laws.

If an employer does not comply with an annualised salary clause, employers may risk underpayment claims and associated penalties for breaching a modern award.

So, what now?

If your business is currently utilising annualised salary arrangements or set-off clauses (if you are unsure), or you are considering placing an employee on an annualised wage, you will need to check that you comply with the new modern award clauses. Not all modern awards contain these clauses, but many do. It is important to be aware of your obligations to employees where award coverage exists.

Get in touch!

Now is a great time to review your employment arrangements and ensure your contracts are up to date. Please get in touch with us for a chat about your employment requirements and what we can do to assist you in navigating this often onerous (but essential!) area of your business.

Francine Clancy, Senior Associate