The Annualised Salaries Clause for Modern Awards

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Recent high-profile cases have highlighted that wage underpayment is an issue very much of the times. This issue can be traced back in part to the fact that modern awards are complex and bewildering, leaving many workplaces unable to implement the letter of the law in its entirety. That is, of course, not a justification for underpayment but an indicator that certain safeguards and systems are needed to better protect salaried employees.

In an attempt to manage some of those issues, the Fair Work Commission (FWC) implemented changes to the concept of annualised salaries under modern awards. These changes came into effect 1 March 2020, but a year later the messaging has still not been disseminated effectively. The FWC decision puts a greater obligation on employers, with significant penalties for failure to implement the obligations towards employees. Therefore, it is important to revise the key concepts and changes, to clarify any lingering uncertainty.

What was added to the laws on Annualised Salaries by the FWC?

Annualised salary arrangements are available to several modern awards and essentially allow an employer to pay a fixed annual wage excluding other award entitlements, such as minimum weekly wages, overtime, and penalty rates.

What was added to these rules was essentially greater obligations on employers to prevent underpayment, via record keeping, pay entitlements and agreements regarding the employee’s salary.

What do these rules require?

These new laws require employers to have fulfilled annual reconciliation every 12 months from the commencement of the annualised salary arrangement, i.e., on the employee’s anniversary. Employers are also required to make sure that any overtime work or work conducted at times falling under penalty rates is considered, while also making sure that the annual salary is equal to or more than what the employee would earn had they been paid in strict accordance with hours worked under the award.

Any shortfalls that would appear (whether as a result of adjusting the above or otherwise), must be paid within 14 days. There is no specific format for processing annual salaries, beyond ensuring that there are no discrepancies in the numbers.

Who do these rules affect?

These rules affect full-time employees who are paid annual wages and belong to one of the below awards – part-time or casual employees are not eligible for annual salary arrangements under these awards.

The awards impacted by these rules fall under two groups, or model clauses. The rules for both groups are same, except for one key difference: Awards falling under model clause three must have written agreements before annualised salaries can be permitted, with copies available for the employee and in the employer’s records.

To see whether your award is included in the annualised wage arrangements, read the FWC’s determinations here.

Tips to help ensure compliance.

The first and most critical thing to ensure is a robust process for recording clock in/clock out time, whether via physical timesheets, emails, or software-based solutions. As a result of the ongoing pandemic, a lot of businesses have shifted to work-from-home schedules, in which case, software or email solutions become essential. In a nutshell, there needs to be written confirmation from the employee regarding hours worked and whether any of those were outside of normal hours.

In regard to written records, employers can also ensure the following:

  • Keep accurate and thorough records of work rosters and hours worked (as supplied by the employee via the above methods) before conducting annual reconciliation of wages.
  • It would also be beneficial to have in writing the calculation method used for determining the annualised salary.
  • Conduct regular salary reviews and ensure all employee contracts meet the annualised salaries clause in accordance with the relevant awards, double checking for any potential shortfall.
  • And finally, make certain that any identified shortfalls, i.e., annual salary paid is less than what the employee would have earned had they been on the award for actual hours worked in the same period, are paid to the employee within 14 days, as stated on the Fair Work Commission decision.

The full decision taken by the Fair Work Commission can be accessed here.