The Fair Work Commission has determined that revised annualised wage provisions will be inserted into a number of modern awards from 1 March 2020, including the Clerks – Private Sector Award 2010 and Manufacturing and Associated Industries and Occupations Award 2010.
Employers that utilise an annualised wage arrangement under a modern award will be required to notify employees of how the annualised wage has been calculated, keep additional records and conduct annual audits.
However, employers are not compelled to enter into an annualised wage arrangement under a modern award and may instead continue to use common law offsetting provisions contained in an employment contract. That is, employers are able to determine whether entering into annualised wage arrangement under a modern award is appropriate for their business.
In light of the recent spate of high profile underpayment cases, including a number involving incorrectly calculated annualised salaries, it is important for employers to understand their obligations and ensure they are compliant.
The Fair Work Commission has settled on three model clauses to be inserted into three categories of modern award (see our table setting out the applicable modern awards below). Each of the new clauses requires employers to:
The three model clauses differ in the following ways:
At this stage, the new annualised wage provisions only apply to full-time employees.
Employers are not obliged to enter into an annualised wage arrangement under a modern award and may continue to rely on offsetting provisions in an employment contract. Employers should consider their own circumstances and whether an annualised wage arrangement under a modern award would be a desirable option for them.
At a minimum, employers are required to pay employees their minimum award entitlements in each specific pay period or roster cycle (usually weekly, fortnightly or monthly depending on the relevant award). If an employee’s annual wage is sufficient to cover their minimum entitlements in each pay period under the modern award, there may be little utility in entering into an annualised wage arrangement under a modern award. Instead, an offsetting clause in an employment contract may provide adequate protection for employers.
However, where the amount of penalty rates or overtime hours worked by an employee fluctuate across the course of the year, it may be that in particular pay periods the employee’s wage is not sufficient to cover minimum award entitlements and in other pay periods they may receive a wage in excess of their minimum award entitlements. In this scenario, the annualised wage provisions in modern awards allow an employer to look at an employee’s wages across the course of a year, without fear of an award breach for not paying the employee’s minimum entitlements in any particular pay period. Of course, where the employee’s wage is less than the employee’s minimum entitlement at the end of a particular year, the employer is required to rectify any shortfall following a yearly reconciliation.
Employers must consider their current arrangements and which option is best for their business.
In all cases, employers must comply with record keeping obligations under the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009 (Cth). In addition, for employers entering into annualised wage arrangements under a modern award, employers are required to record employee starting and finishing times and unpaid breaks, which must be signed or acknowledged as correct by employees in each pay period.
Employers need to consider whether to enter into an annual wage arrangement under a modern award or rely on offsetting provisions in an employment contract. Either way, employers must understand what entitlements are built into annual salaries. A “set and forget” approach is untenable.
All annualised wage arrangements must be supported by robust and well-drafted employment contracts. Employers also need to have in place good systems for record keeping and, if entering into an annualised salary arrangement under an award, yearly reconciliations.
This is a complex area and failure to comply can result in significant financial and reputational consequences.
Gadens is well placed to assist employers to understand their obligations and implement supporting employment documentation.
Steven Troeth, Partner
Emma Moran, Senior Associate
Katie White, Lawyer