Monday, 20 January 2020

Important Changes to Annualised Salary Provisions in Modern Awards

Every 4 years the Fair Work Commission (FWC) is required to conduct a review of modern awards.  The most recent review commenced in early 2018 and starting in 2020, the FWC will extensively vary existing awards.

In particular, from 4 February 2020, 31 modern awards will be updated with a new, easy to read format.

Further, from 1 March 2020, employers who currently pay annualised salaries to employees covered by certain modern awards must comply with new notification, record-keeping and reconciliation requirements.

Changes to Annualised Salary Arrangements

A number of recent public cases of employers self-reporting or being caught out underpaying their staff often by way of annualised salaries (including the likes of Woolworths, Made Establishment run by George Calombaris and Super Retail Group) has called into question the reliability of annualised salary arrangements under modern awards, and whether they are effective in providing a fair and relevant minimum safety net of terms and conditions for employees. Consequently, a large part of this four-yearly review by the FWC revolved around annualised salary arrangements.

After almost a year of deliberation on this matter, in February 2019 the FWC confirmed new clauses regarding annualised salary arrangements would be inserted into the Modern Awards. Immediately prior to Christmas, the FWC published updated draft determinations regarding the wording of the annualised salary provisions. The FWC has invited submissions on these determinations, and we anticipate that final clauses will be confirmed in the coming month, possibly with the inclusion of transitional provisions.

The clauses will only be inserted into modern awards which already contain annualised salary clauses, plus two additional modern awards. Awards which will be affected include the Banking, Finance and Insurance Award, the Clerks (Private Sector) Award, the Restaurant Industry Award and the Hospitality Industry (General) Award. See below for a full list of the impacted awards.

The changes that employers should be aware of are as follows:

  1. Employers must notify employees in writing of the annualised salary payable to them, the clauses of the modern award that will be satisfied by the annualised salary and how the annualised salary has been calculated. They will also need to specify the “outer limit” of ordinary hours that would attract penalties or overtime the employee may be required to work in a pay period or roster cycle without being entitled to additional pay.
  2. Any hours worked in excess of the “outer limit” by an employee paid by way of an annualised salary must be paid separately to the annualised salary as overtime or with the relevant penalty rates.
  3. Employers must undertake an annual reconciliation each 12 months from commencement of the annualised salary arrangement to ensure that the salary is equal to or more than the amount that would have been payable to the employee if they were paid strictly in accordance with the modern award. Any shortfalls must be paid to the employee within 14 days.
  4. Employers must keep a detailed record of the employee’s start and finish time, including any unpaid breaks. This record must be signed by the employee or acknowledged in writing as a correct and accurate record during each pay or roster cycle.
  5. Under certain awards (including the Hospitality Industry (General) Award and Local Government Industry Award), both the employer and the employee may terminate the annualised salary arrangement by giving 12 months’ written notice.

Please note that the proposed annualised salary clauses will only apply to full time employees.

Most of these new annualised salaries provisions will take effect from 1 March 2020.

What Employers should do next

Prior to 1 March 2020, employers should consider whether a modern award applies to the business which will contain the proposed annualised salary model clauses.

Employers paying annualised salaries in accordance with impacted awards will need to ensure they have systems and process in place prior to 1 March 2020 to address the changes to the requirements for annualised salaries.

In particular, employers should ensure that they:

  1. Implement a calculation method for any annualised salary in writing. This should include consideration of the number of ordinary hours worked by an employee, and likely penalty rates and overtime which employees would be entitled to.
  2. Keep accurate and detailed records of hours of work and rosters in order to conduct annual reconciliations. This will include keeping records of overtime and other penalty-rate hours where an annualised salary arrangement displaces the award requirements for payment of such hours.
  3. Conduct annual reconciliations comparing the amount paid by way of the annualised salary and the amount that would have been payable had the award provisions been applied in the ordinary way. If any shortfalls are identified, these should be paid within 14 days.
  4. If required, issue new contracts to staff who will be affected by the new annualised salary provisions.

If an employer does not comply with an annualised salary clause, employers may risk underpayment claims and associated penalties for breaching a modern award.

HR Legal will be presenting an online webinar in early March to discuss the changes to the annualised salary provisions in more depth.  Details about this webinar will be uploaded to our website in due course. 

Awards impacted by revised Annualised Salary Arrangements

  • Banking, Finance and Insurance Award 2010
  • Broadcasting, Recorded Entertainment and Cinemas Award 2010
  • Clerks—Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Horticulture Award 2010
  • Hospitality Industry (General) Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Marine Towage Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010
  • Pastoral Award 2010
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Restaurant Industry Award 2010
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.