New annualised salary award provisions will apply from 1 March 2020

As part of the four yearly review of modern awards, the Fair Work Commission (FWC) has recently handed down a decision which will impact employers paying annualised salaries to employees covered by a modern award with an annualised salary clause. The FWC decision on annualised salary award provisions finalises the terms of three new standard ‘annualised wage arrangement’ clauses, which will replace the existing annualised salary clauses in the 19 modern awards already containing an annualised salary clause. The new terms will also be inserted into three modern awards which have not previously had an annualised salary clause.

What is an annualised salary arrangement?

Annualised wage (or salary) arrangements are permitted under a number of awards and allow an employer to pay a fixed annual wage in satisfaction of various award entitlements, including minimum weekly wages, allowances, overtime, penalty rates and annual leave loading. Most of the existing annualized wage award provisions are relatively simple to apply and allow employers a reasonable degree of flexibility and convenience when managing remuneration arrangements.

What is changing with annualised salary award provisions?

The new award annualised wage provisions are in generally consistent terms but there are important differences and employers should carefully review the arrangements for each award covered employee in their business to ensure compliance. Key changes to the award annualised wage provisions include:

  • An employer may pay a full-time employee an annualised wage in satisfaction of minimum weekly wages, allowances, overtime penalty rates, weekend and other penalty rates and annual leave loading;
  • The employer must advise the employee in writing and keep a record of:

o   the annualised wage to be paid;

o   the provisions of the award to be satisfied by the annualised wage;

o   the method by which the annualised wage is calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation;

o   the outer limit number of ordinary hours which would attract payment of penalty rates under the award in a pay period or roster cycle; and

o   the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle;

  • 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. That is, these amounts must be paid on top of the annualised wage;
  • The annualised wage must not be less than the minimum amounts payable under the award for work performed over the year for which the annualised wage is paid;
  • Each 12 months following the commencement of the annualised wage arrangement or upon termination of the 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;
  • The employer must keep a record of the start and finish times, including any unpaid breaks taken, for each employee who is party to an annualised wage arrangement. This record must be signed by the employee or acknowledged in writing as being correct during each pay period or roster cycle. An electronic acknowledgement will be acceptable; and
  • The model award clause to be inserted into certain awards where employees typically work highly variable hours requires that the employee and employer agree to the annualised wage arrangement (ie, employee consent is required) and allows either party to terminate the arrangement by giving the other 12 months’ written notice.

What should employers do to prepare for these changes?

We expect that many employers will find the new annualised wage arrangements difficult to implement and time-consuming to manage. Given this, employers should review the annualised wage provisions that will apply to your business from 1 March 2020 and start preparing for the introduction of the new arrangements or alternatively, seek advice about other compliant options.

 What awards are affected by the new obligations?

Model Clause 1 will become the standard annualised wage arrangements clause for awards under which employees generally work relatively stable hours, namely the:

  • 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; and
  • Wool Storage, Sampling and Testing Award 2010.

Model Clause 3 will become the standard annualised wage arrangements clause for awards under which employees work highly variable hours or significant ordinary hours which attract penalty rates under the award, namely the:

  • 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;
  • Pastoral Award 2010; and
  • Horticultural Award 2010.

The FWC has deferred the insertion of:

  • Model Clause 3 in the Health Professionals and Support Services Award 2010 for supervisory and managerial staff; and
  • Model Clause 4 in the Restaurant Industry Award 2010, the Marine Towage Award 2010 and the Hospitality Industry (General) Award 2010 in respect of non-managerial staff,

as it further considers these changes. A new operative date for these changes will be determined later.

You can contact us if you have any questions.