The Fair Work Commission has now confirmed changes relating to annualised salaried arrangements in a number of modern awards, with changes taking effect from 1st March 2020.

What are annualised salaries?

Some modern awards contain provisions for annualised salaried arrangements. This means that an employer can pay an employee an annual salary that takes into account award provisions like:

  • Minimum weekly wages
  • Allowances
  • Overtime and penalty rates; and
  • Annual leave loading

Some awards also allow meal allowances, shift penalties, breaks, public holidays, etc. be included in an annualised salary arrangement rather than paid separately. It is important to check each award to understand which award conditions can be included in an annualised salary.

BOOT – Better Off Overall Test

An annual salary can be inclusive of any of these benefits, as long as the arrangement is in writing and the employee is not disadvantaged by receiving an annual salary. You may have heard of the BOOT test, where award entitlements and wages are tallied up and tested against the annual salary to ensure the employee is better off overall.  This means that the annual salary must not be less than the amount the employee would receive under the award.

What is changing?

The current clauses relating to annualised salaries will be removed and replaced with a new clause.

The new clause will still allow the same provisions as outlined above to be included in an annualised salary, however there are additional requirements for employers to follow when there are annualised salaries in place. Employers must advise the employee in writing of the arrangement and keep a record of:

  • The annualised wage that is payable;
  • Which of the provisions of the award will be satisfied by payment of the annualised wage;
  • The method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation; and
  • The other limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage.

For example, if the employee’s annual salary is calculated based on working a 40 hour week, the additional 2 hours of overtime each week worked after the 38 ordinary hours, will need to be included in the annualised salary. If the employee then works 45 hours in one week, the additional 5 hours must be paid separately to the employee and paid in accordance with the award, or if Time Off In Lieu applies, this may be accrued – again always check the award.

Every 12 months the employer must also calculate the amount of remuneration that the employee would have been paid under the award and compare this with what the employee is paid as an annualised salary. If the employee is paid less than what they would receive under the award, the employer must pay the employee the amount of shortfall within 14 days.

The changes also require employers to keep a record of the start and finish times of work and any unpaid meal breaks for each employee with an annualised salary so that this information can be used for the calculations to determine what the employee would be paid in accordance with the award. The record of hours must be signed by the employee, or acknowledged as correct in writing, each pay period or roster cycle.

Some awards also state that the annualised salary agreement can be terminated by either the employer or employee giving 12 months’ notice of termination in writing, to the other party and the agreement will cease to operate at the end of the notice period; or that the agreement can be terminated at any time by written agreement between the employer and employee.

Which modern awards are impacted?

The following awards are impacted by these changes and contain the annualised salary clause:

  • Banking, Finance and Insurance Award
  • Broadcasting, Recorded Entertainment and Cinemas Award
  • Clerks—Private Sector Award
  • Contract Call Centres Award
  • Horticulture Award
  • Hospitality Industry (General) Award
  • Hydrocarbons Industry (Upstream) Award
  • Legal Services Award
  • Local Government Industry Award
  • Manufacturing and Associated Industries and Occupations Award
  • Mining Industry Award
  • Oil Refining and Manufacturing Award
  • Pastoral Award
  • Pharmacy Industry Award
  • Rail Industry Award
  • Salt Industry Award
  • Telecommunications Services Award
  • Water Industry Award
  • Wool Storage, Sampling and Testing Award

What do employers need to do?

If you have any employees covered by any of these listed awards and you are paying annualised salaries, you must ensure that employees are not disadvantaged by receiving an annualised salary and arrangements are detailed in writing. Employers must be aware of these changes and ensure that they are complying with these additional requirements from the 1st March 2020.

Some things to consider if your employees fall under these awards:

  • Review your time keeping process – if employees submit timesheets, do they sign off on these?
  • How are start and finish times recorded, and who is going to be responsible for reconciling hours worked against the salary paid? How often will this reconciliation happen?
  • Do you have up to date position descriptions that clearly outline the duties and responsibilities, and are these aligned to the correct award classification?
  • When employees work longer hours, is this recorded, and should this be authorised to avoid overtime penalties?
  • What is your TOIL (Time Off in Lieu) policy, and does this meet the award requirements?

Many employers are paying annualised salaries that they believe are over and above the award provisions however after considering hours, and award entitlements such as leave loading or overtime for more than 38 hours worked, a pay audit can reveal shortfalls which can be costly to rectify.

If you pay employees an annual salary and they are covered by one of the awards listed, its important to review this now. If you require any assistance with understanding the award provisions, performing the calculations or implementing processes to comply with these changes, please contact us.

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