Annualised Salary Arrangements

In 2020, the Fair Work Commission (FWC) implemented changes to annualised wage arrangements (otherwise known as annualised salaries) within several modern awards. The changes, implemented across approximately twenty modern awards, introduced different versions of a model salary clause which changed the obligations for employers paying a full-time employee an annualised salary.

What were the changes?

The clauses imposed an obligation on employers to do the following in respect of any full-time employee whom the employer wished to compensate by way of an annual salary under the relevant award:

1. Advise or agree with the employee (depending on the particular modern award), in writing, to the following:
2. The value of the annualised wage they will be paid;
3. Which provisions of the applicable award will be satisfied by the annualised wage;
4. The method of how annualised wage is calculated (including specification of each separate component and any overtime or penalty assumptions used in the calculation);
5. The outer limit number of ordinary hours attracting penalties and the outer limit number of overtime hours which an employee may be required to work in a pay period or roster cycle without being entitled to additional remuneration; and
6. That where the employee works over the outer limit of hours, they will be remunerated in addition to the annualised wage in accordance with the award.
7. Keep a record of all matters listed in 1;
8. Ensure the annualised salary is no less than the amount the employee would have received under the award, assessed over a year (although if the employee’s employment ends earlier than the full year, the assessment must be made in respect of the period worked);
9. On a 12-month basis (on the anniversary of the entering into the annualised wage arrangements), perform a calculation to ensure the annualised wage is no less than the employee would have earned if they were paid an hourly wage according to the applicable award;
10. Make a top-up payment of any shortfall identified in 4 within 14 days;
11. Keep records of the employee’s starting and finishing times of work and any unpaid breaks taken; and
12. Ensure the records in 6 are signed by the employee or acknowledged as correct in writing (including digitally) each pay period/roster cycle.

These changes to the annualised salary clauses caused significant disruption to the business operations of many employers. This includes the mandate for employers to maintain and comply with record keeping obligations which are more onerous than those under the Fair Work Act 2009 and the Fair Work Regulations 2009.

Since the changes, employers are required to implement additional processes to ensure their ongoing compliance with the relevant modern awards, including keeping records of time worked and regularly calculating minimum award entitlements to ensure their employees’ annualised salaries remain equal to or higher than what the award equivalent would be and thus minimising any risk of an underpayment claim against the company.

What do I need to do now?

With the changes effective two years ago and the requirement on employers to review all employees’ salaries annually, many employers will currently be engaging in a second assessment process to ensure the salaries sufficiently meet the minimum entitlements under the applicable award.

In addition, now that we are coming out of the worst of the COVID-19 pandemic, it is a good time for employers to take stock and rectify any inadvertent non-compliance issues resulting from increased flexibility to employees’ working hours and arrangements wrought by the effects of the pandemic. Businesses should be mindful that such flexible working practices may have resulted in non-compliance with the annualised salary requirements, such as to record all hours of work and compensate the employee for working in excess of their specified outer limit overtime/penalty hours.

Lastly, the annual wage review is fast approaching. It is a timely reminder for employers to get their affairs in order prior to needing to conduct a further salary review following the 2022 minimum wage increase. Such reviews will help to limit any non-compliance that may have occurred, so employers are in the best position to calculate and negotiate salaries with their employees from July this year.

Where can I find support?

For advice on managing your workforce and payment of annualised salaries, FCB Workplace Law is here to help. With teams of lawyers, accredited specialists and HR professionals proficient in the space of workplace relations, FCB can provide as much or little support as you need to allow you to get back to running your business.

The WorkForce Suite helps businesses remain compliant with the Fair Work Commission Annualised Salary arrangements, including payments and calculations for outer limit overtime hours, while also quickly adapting to unique business rules with our intelligent decision architecture. Salary and Award comparison rules are run in real-time, meaning we can mitigate risks with predictive and proactive alerts to enable a swift response to prevent or correct noncompliance at any time throughout the 12-month calculation period. Prove record keeping compliance with audit trails that detail when, what, where and how data was processed.

For the latest in Australian workplace legislation, case law and best practices, read the Q1 2022 HR Compliance Navigator Report.

Date: 22 April 2022