Pub­li­ca­tions

Changes to Annu­alised Salaries under Mod­ern Awards: A Short Guide

From 1 March 2020, changes to the annu­alised salary pro­vi­sions in a num­ber of mod­ern awards will impose more oner­ous admin­is­tra­tive require­ments on employ­ers with respect to award-cov­ered salaried employees.

This change was the result of a deci­sion of the Fair Work Com­mis­sion (FWC) ([2019] FWCFC 4368]) (Deci­sion) as part of its four year­ly review of mod­ern awards. This arti­cle sets out, in gen­er­al terms, the steps employ­ers will need to take to pre­pare for these changes. (It is imper­a­tive, how­ev­er, that employ­ers seek bespoke advice on how these changes will affect their spe­cif­ic employ­ment arrange­ments. This is intend­ed to be a brief, intro­duc­to­ry guide.)

What are annu­alised salaries?

Many mod­ern awards con­tain an annu­alised salary’ clause, con­fer­ring upon employ­ers the abil­i­ty to pay to award-cov­ered employ­ees an annu­alised salary, being a fixed, all inclu­sive’ salary, cov­er­ing var­i­ous enti­tle­ments such as week­ly pay, allowances, over­time rates, oth­er penal­ty rates and annu­al leave load­ing. Annu­alised salary pro­vi­sions have tra­di­tion­al­ly giv­en employ­ers a sim­ple and admin­is­tra­tive­ly effi­cient option with respect to struc­tur­ing their employ­ee’s remuneration. 

What are the impor­tant changes?

Nine­teen mod­ern awards will be impact­ed by the changes made by the FWC to annu­alised salary pro­vi­sions, includ­ing the Bank­ing, Finance and Insur­ance Award 2010, Clerks – Pri­vate Sec­tor Award 2010, Hos­pi­tal­i­ty Indus­try (Gen­er­al) Award 2010 and Man­u­fac­tur­ing and Asso­ci­at­ed Indus­tries and Occu­pa­tions Award 2010. A fur­ther three awards, includ­ing the Health Pro­fes­sion­als and Sup­port Ser­vices Award 2010, will have annu­alised salary pro­vi­sions insert­ed where one pre­vi­ous­ly did not exist. 

Notably, the FWC has devel­oped sev­er­al mod­el claus­es which will apply to the affect­ed awards. Sub­tle dif­fer­ences exist between these claus­es. For exam­ple, some mod­el claus­es require employ­ees to agree to an annu­alised salary arrange­ment, where­as, oth­ers do not. It is impor­tant employ­ers are aware of which clause has been insert­ed into the mod­ern awards that apply to their work­force so these nuances can be prop­er­ly addressed. 

The main changes to the annu­alised salary pro­vi­sions, large­ly com­mon between the mod­el claus­es, include: 

  • keep­ing accu­rate writ­ten records of the annu­alised salary arrange­ment, the pro­vi­sions of the award sat­is­fied by the annu­alised salary arrange­ment and, in some instances, the method used to cal­cu­late the annu­alised salary; 
  • keep­ing writ­ten records of the employ­ee’s start­ing and fin­ish­ing times of work, and any unpaid breaks tak­en, to be acknowl­edged as accu­rate by the employee; 
  • record­ing the out­er lim­it” num­ber of ordi­nary hours which would attract award penal­ty rates, and the out­er lim­it” num­ber of over­time hours which the employ­ee may be rea­son­ably required to work in a pay peri­od or ros­ter cycle which would be ade­quate­ly remu­ner­at­ed by the annu­alised salary; and 
  • where an employ­ee works in excess of the out­er lim­it’ hours above, pay­ing that employ­ee an addi­tion­al amount to accu­rate­ly com­pen­sate for the addi­tion­al hours worked. 
  • imple­ment­ing new pro­ce­dures to record employ­ee’s start, fin­ish and break times;
  • cal­cu­la­tion of out­er lim­it” num­ber of ordi­nary and over­time hours;
  • ensur­ing employ­ees sign a record of these times with each pay cycle; and 
  • pro­vid­ing addi­tion­al remu­ner­a­tion to any employ­ees whose hours are in excess of what is now cov­ered by the annu­alised salary arrangement. 

It is fair to say that some of these oblig­a­tions, par­tic­u­lar­ly in rela­tion to record keep­ing, some­what defeat the ratio­nale for employ­ers adopt­ing annu­alised salary arrange­ments, which is to pro­vide cer­tain­ty and admin­is­tra­tive simplicity. 

What do employ­ers need to do?

It is impor­tant employ­ers are aware of which clause applies to their award-cov­ered employ­ees pri­or to the changes being imple­ment­ed on 1 March 2020

Employ­ers affect­ed by these changes may need to alter their admin­is­tra­tive and pay­roll pro­ce­dures to ensure that they are com­pli­ant with the new award require­ments. This may include, for example:

  • imple­ment­ing new pro­ce­dures to record employ­ee’s start, fin­ish and break times;
  • cal­cu­la­tion of out­er lim­it” num­ber of ordi­nary and over­time hours;
  • ensur­ing employ­ees sign a record of these times with each pay cycle; and 
  • pro­vid­ing addi­tion­al remu­ner­a­tion to any employ­ees whose hours are in excess of what is now cov­ered by the annu­alised salary arrangement. 

It is also impor­tant that employ­ers ensure they review the changes to the annu­alised salary pro­vi­sions against any sim­i­lar arrange­ment set out in exist­ing or prospec­tive con­tracts of employ­ment. The Deci­sion does, how­ev­er, keep open the pos­si­bil­i­ty of con­tin­u­ing to use com­mon law con­trac­tu­al set-off clauses. 

A num­ber of recent under­pay­ment scan­dals cov­ered in exten­sive­ly in the media have arisen from the mis­use of annu­alised salaries for employ­ees cov­ered by mod­ern awards. The pos­si­bil­i­ty of back pay­ments, penal­ties and pub­lic oppro­bri­um make this an impor­tant issue for employ­ers to get right.