Employment law myth No.6: “If I pay them a salary, the award doesn’t apply”
Most employees in Australia are covered by an industry or occupation-specific modern award which provides for minimum terms and conditions whilst so employed. Importantly, the awards set minimum pay rates depending on the employee’s classification under the award. The classification will (depending on the award in question) be determined by factors such as the employees’ duties, experience and qualifications. In addition to separate rates of pay for “ordinary hours”, overtime and weekend work (penalty rates), most awards provide for employees to be entitled to various allowances. For example, under the Building and Construction General Onsite Award 2010 there are separate allowances for work that is “hot”, “wet” or “dirty”. Under the Funeral Industry Award 2010 there is an “exhumation allowance” for each body exhumed (currently $86.57 per body).
Most awards also provide that employees are entitled to an annual leave loading (uplift) of 17.5% of their ordinary pay when they take a period of annual leave.
For employers, it can often be something of a bureaucratic headache to work out exactly what each employee is entitled to be paid for each hour worked when so many variables have to be taken into account. It is common practice, therefore, for employers to pay an annual salary which attempts to take into account all financial entitlements under the applicable award. Problems often arise when an employee is not given a written contract of employment which specifies that the salary is directed to all monetary entitlements under the award. In addition, some awards have very strict requirements about what written notice an employee must be given when paid an annualised salary (see for example, clause 17 of the Clerks – Private Sector Award 2010).
It is also a common misconception that where an annual salary is paid, the award no longer applies. This is not the case. For starters, any annual salary paid must be at least equivalent to what the employee would have received if they were paid strictly in accordance with the award. In addition, paying an annual salary – even a very generous one – will not by itself avoid the need to comply with other terms of the award that deal with non-monetary entitlements. An obvious example is the requirement under most awards to provide employee with breaks (for example the Live Performance Award 2010 decrees that “employees performing striptease, erotic dancing, tabletop or podium dancing will be given a break of no less than 30 minutes between the end of one performance and the commencement of another performance”).
The penalties for breaching the terms of an award are up to $63,000 for companies and $12,600 for individuals involved in the contravention.
There is a limited ability to “contract out of the award” if employer and employee agree to enter into a formal “guarantee of annual earnings” where the employee will be paid at least $142,000 (gross) per annum. The guarantee needs to be in the form of a written undertaking and comply with various formalities. A simple employment contract is unlikely to be sufficient.