On 4 July 2019, the Fair Work Commission (“Commission”) finalised its decision in relation to the incorporation of new ‘annualised wage arrangement’ clauses, which will replace the existing annualised salary clauses in the modern awards already containing an annualised salary clause. The new terms will also be inserted into three modern awards (Pastoral Industry Award 2010, Horticulture Award 2010 and Health Professionals and Support Services Award 2010) which have not previously had an annualised salary clause.

This decision may fundamentally change the way many employers deal with staff on annual salaries. Gone are the days where an employer can pay an annual salary and thereby completely ignore the relevant modern award. To do this, post the forthcoming changes, is inviting significant underpayment liability.

The proposed new clauses will fall into one of three categories and have specific requirements:

  1. Category 1 – includes modern awards which cover employees who work relatively stable hours. The Commission determined that the annualised salary term for this category will not require an employee’s agreement to the introduction of an annualised salary arrangement. The employer may implement an annualised salary in this category without employee agreement;
  2. Category 2 – includes modern awards which cover employees who work highly variable hours and/or significant ordinary hours of work which attract a penalty rate. The Commission determined that the annualised salary term for Category 2 modern awards will require employers and employees to agree on the application of an annualised salary arrangement; and
  3. Category 3 – includes modern awards which currently provide that the annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award (e.g. 25% in the Restaurant Award). The FWC determined that the annualised salary term for Category 3 modern awards will require employers and employees to agree on the application of an annualised salary arrangement. The clause will only apply in respect to non-managerial staff.

Category 1 awards include:

  • Banking, Finance and Insurance Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010 (clerical employees only)
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

Category 2 awards include:

  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Oil Refining and Manufacturing Award 2010 (non-clerical employees)
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Horticulture Award
  • Pastoral Award 2010
  • Health Professionals and Support Services Award 2010

Category 3 awards include:

  • Marine Towage Award 2010
  • Restaurant Industry Award 2010
  • Hospitality Industry (General) Award 2010

Additionally, pursuant to the decision, the new annualised salary provisions, irrespective of category, introduce a number of compliance requirements on employers requiring them to:

  1. advise employees in writing (e.g. within their contracts) of the award provisions that are satisfied by the annualised wage – i.e. specifying which of each component of minimum rates, allowances, overtime/penalties and annual leave loading are satisfied by the annualised salary; and
  2. advise employees in writing and specify (e.g. within their contracts) the outer limit of ordinary hours that would attract award penalty payments, and the outer limit of overtime hours the employee may be required to work without being entitled to an additional payment, such that:
    1. the employer needs to forecast the maximum ordinary hours an employee might work on a weekend or after hours that would otherwise attract a shift penalty;
    2. the employer needs to forecast the maximum hours the employee might be required to work over and above ordinary hours that would otherwise attract overtime pay, and if the employee works in excess of these forecasts, shall be paid an additional sum over the weekly/fortnightly/monthly remuneration imagined by the annual salary; and
    3. at the end of each 12 months from the commencement of the annualised wage arrangement (or at the employee’s termination) to compare the annualised wage paid against the actual remuneration that would have been payable to the employee under the award. Where there is any shortfall, the employer must pay the outstanding amount within 14 days; and
    4. keep records of the starting and finishing times and unpaid meal breaks of each employee, for the purpose of complying with the comparison obligation described above.

These new requirements as proposed in the decision, for some industries, will reflect practices already implemented whilst for others, will appear oppressively onerous.  To that end, we note that the Commission has already begun publishing the future awards in draft, set to commence operation on 4 February 2020. However, these draft future awards contain annual salary clauses that do not, at this stage, mirror the Commission’s decision.

For example, the three draft future awards published include the:

  • Banking, Finance and Insurance Award 2010;
  • Legal Services Award 2010; and
  • Oil Refining and Manufacturing Award 2010

These three draft future awards do not incorporate the requirement that employers advise employees in writing and specify the outer limit of ordinary hours that would attract award penalty payments or the outer limit of overtime hours the employee may be required to work without being entitled to an additional payment.  Furthermore, they do not compel employers to keep records of the starting and finishing times and unpaid meal breaks of each employee.

Nonetheless, it should be noted that these draft future awards have not yet been finalised and may yet incorporate all the requirements as set out in the Commission’s decision.

What This Means for Employers

Employers must not delay and ought to act now to do the following:

  • Identify whether employees are covered by a modern award;
  • If the employees earn an annual salary, whether the salary term and contracts of employment comply with the proposed new award clauses;
  • Implement time and attendance recording procedures; and
  • Implement mechanisms to conduct annual reviews to ensure compliance with the award pay requirements.

By way of best practice, and in whichever industry, employers who intend to employ staff on annualised salary arrangements should be appropriately tooled to keep accurate time and attendance records. This is fundamentally important to ensure that in the event of audit, employers can demonstrate compliance with the remuneration requirements of the applicable award and discharge their evidentiary burden to demonstrate employee remuneration was in line with, or above hours worked including any penalties/overtime and the like.

Furthermore, employers should review their current contracts of employment for employees who are in receipt of annualised salaries and be prepared to implement contract variations for affected staff to maintain compliance. It is also worthwhile for employers to publish memos to staff, advising of any changes – particularly to routine (e.g. clocking in and out) and that the changes are being implemented for their benefit.

The time to act is now!

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article