In the past, you have thought it is OK just to give your receptionist or your para planner or your chef or your… a standard weekly, fortnightly or monthly pay or an annualised salary regardless of the hours that they work? You pay above award so that’s OK, right? Well…maybe, but it comes with strings attached.
One of the main reasons that employers like to have fixed wage or annualised salary arrangements is for simplicity in administration. Another is to offer a higher overall package than just award rates and conditions. Employees also get the benefit of superannuation guarantee contributions on the higher annualised wage or salary. So it can be a positive all round.
We also know that there have been a number of high-profile cases where workers have been grossly underpaid because annualised wage arrangements left them much worse off than they would be under award conditions.
Unfortunately, for those who have been doing the right thing, it appears that you will also have to pick up an extra administrative workload in entering into and reviewing annualised wage/salary arrangements if you are to be compliant with the relevant award.
The Fair Work Commission recently decided to vary 21 Modern Awards to provide annualised wage provisions that will come into operation on 1 March 2020. These variations impose significantly increased obligations on employers entering into annualised wage arrangements with employees.
The new award clauses provide that an employer can have an annualised wage arrangement with an employee on the following terms:
- The annualised wage can compensate for and set off specific award provisions namely minimum weekly wages, allowances, overtime penalty rates, weekend and other penalty rates and annual leave loading;
- There must be written advice to the employee of the annual wage arrangement
- The employer must maintain a record of the annualised wage that is payable, which provisions of the award will be satisfied by the annualised wage, how it has been calculated with details on each separate component and any assumptions on overtime or penalties that have been used in the calculations
- The outer 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. Provisionally, this will be an average of 16 hours over the pay period or roster for penalty rates, and 10 hours for overtime over the pay period. **Final decision has not been made by the FWO as yet.
- If in a pay period or roster cycle an employee works any hours in excess of those outer limit amounts, such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of the award.
- The annualised wage must be no less than the amount the employee would have received under the award for the work performed over the year for which the wage is paid (or if the employment ceases earlier over such lesser period as has been worked)
- The employer must each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee calculate the amount of remuneration that would have been payable to the employee under the provisions of the award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.
- The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking that comparison. This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.
Some of the affected awards are:
- Banking, Finance and Insurance Award 2010
- Clerks – Private Sector Award 2010
- Hospitality Industry (General) Award*
- Manufacturing and Associated Industries and Occupations Award 2010
- Restaurant Industry Award 2010*
Note: those awards with an * have industry specific provisions.
Interestingly, the FWC decision also includes this statement: “Employers may, pursuant to private contractual arrangements, pay employees in accordance with a salary arrangement that compensates for or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award.” If the Fair Work Ombudsman comes calling, I wouldn’t be relying on that statement as a defence because, even if you use a common law contract, you still can’t pay someone less than they would get under all relevant award conditions. There is also now a reverse onus of proof on employers to prove that they have not underpaid a worker so you need the evidence (ie the records of hours worked etc) in any case.
So, what does that all mean if you use employment contracts in lieu of strictly applying the award? At a minimum, you should do three things:
- Review your employment contracts to ensure that they have appropriate provisions to deal with award setoff and compensation (and, if you don’t have formal tailored employment contracts/agreements, get them)
- Have a process for regularly (at least annually) verifying that annualised salary/wage arrangements are adequate to ensure that the employee is better off overall than under award conditions
- Have a process for monitoring and managing hours of work and rosters to ensure that employees do not get into a situation where (at any point in time) they are not better off overall than they would be under the award rates and conditions.
Industry specific provisions:
Hospitality Industry (General) Award 2010 – excerpt from Modern Award
This clause applies to employees other than those classified as Managerial Staff
(a) As an alternative to being paid by the week according to clause 20—Minimum wages, by agreement between the employer and the employee, the employer may pay the employee at a rate equivalent to an annual salary of at least 25% or more above the rate prescribed in clause 20—Minimum wages, times 52 for the work being performed. The employer and the individual employee must genuinely make the agreement without coercion or duress.
(b) An agreement provided for in subclause 27.1(a) will:
(i) have regard to the pattern of work in the employee’s occupation, industry or enterprise but must not disadvantage the employee involved; and
(ii) unless the parties otherwise agree, relieve the employer of the requirements under clauses 32—Penalty rates and 33—Overtime (or other award clauses prescribing monetary entitlements, as specified in the agreement) to pay penalty rates and/or overtime (or other specified award-derived monetary entitlements) that the employer would otherwise be obliged to pay in addition to the weekly award wage for the work performed and the hours worked by the employee, provided that the salary paid over a year will be sufficient to cover what the employee would have been entitled to if all award overtime and penalty rate payment obligations (and other monetary entitlements specified in the agreement) had been complied with.
(c) Provided further in the event of termination of employment prior to completion of a year the salary paid during such period of employment will be sufficient to cover what the employee would have been entitled to if all award overtime and penalty rate payment obligations had been complied with.
(d) An employee being paid according to this clause will be entitled to a minimum of eight days off per four week cycle. If such an employee is required to work on a public holiday, they are entitled to paid time off that is of equal length to the time worked on the public holiday or the equal length of time worked to be added to their annual leave entitlement.
(e) Where payment in accordance with this clause is adopted, the employer must keep a daily record of the hours worked by an employee which will show the date and start and finish times of the employee for the day. The record must be countersigned weekly by the employee and must be kept at the place of employment for a period of at least six years.
Restaurant Award 2010
(a) As an alternative to being paid by the week, by agreement between the employer and an individual employee, an employee other than a casual, can be paid at a rate equivalent to an annual salary of at least 25% or more above the weekly rate prescribed in clause 20—Minimum wages, multiplied by 52 for the work being performed. In such cases, there is no requirement under clauses 24.2,33—Overtime,34.1 and 34.2 to pay overtime and penalty rates in addition to the weekly wage, provided that the salary paid over a year was sufficient to cover what the employee would have been entitled to if all award overtime and penalty rate payment obligations had been complied with.
(b) Provided further that in the event of termination of employment prior to completion of a year, the salary paid during such period of employment must be sufficient to cover what the employee would have been entitled to if all award overtime and penalty rate payment obligations had been complied with.
(c) An employee being paid according to this clause will be entitled to a minimum of eight days off per four week cycle. Further, if an employee covered by this clause is required to work on a public holiday, such employee will be entitled to a day off instead of public holidays or a day added to the annual leave entitlement.
28.2 The employer must keep all records relating to the starting and finishing times of employees to whom this clause applies. This record must be signed weekly by the employee. This is to enable the employer to carry out a reconciliation at the end of each year comparing the employee’s ordinary wage under this award and the actual payment. Where such a comparison reveals a shortfall in the employee’s wages, then the employee must be paid the difference between the wages earned under the award and the actual amount paid.