Do you have annualised wages in your organisation? This guide will help you get prepared for the 1 March 2020 changes.

The concept of annualised wages under modern awards and their impact on existing employment arrangements has left many HR practitioners bewildered. There is one certainty – it is time to start assessing your employees’ existing annualised wage or salary arrangements with modern award obligations in mind. This will include reconciling the hours award covered employees work to ensure they are adequately remunerated for any award entitlements they should receive, even if they are paid a salary under a contract of employment.

The decision

In July 2019, the Fair Work Commission handed down a decision for annualised wages as part of its four yearly review of modern awards (the decision can be accessed here).  The decision requires employers to comply with certain new modern award annualised wage clauses from 1 March 2020 — but only in relation to employees who are paid an annualised wage, as opposed to a salary under a contract of employment. 

There are three different types of annualised wage provisions. For the purposes of this article, we will refer to the Clerks Award to illustrate the changes brought about by this decision.

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Are you required to do anything differently? 

For full-time employees covered by a modern award and who are paid an annualised wage under that award (as opposed to a salary under a contract of employment), the answer is YES. 

From 1 March 2020, for employees who currently receive an annualised wage under a modern award, employers will need to comply with a new model award annualised wage clause that is effective in certain modern awards, such as the Clerks Award. The new annualised wage clause is more onerous and imposes a number of new record-keeping obligations on employers. 

By way of example, in the Clerks Award, employers need to:

1. advise the full-time employee who is to enter into the annualised wage arrangement and keep a record of:
   1. the annualised wage;
   2. the provisions of the award the annualised wage satisfies;
   3. the method by which the annualised wage has been calculated including each component of the annualised wage and any assumptions made regarding overtime and penalties; and
   4. the ‘outer limit’ of how many ordinary hours and overtime hours may be worked without requiring a payment in excess of the annualised wage. 
2. conduct a review to ensure the employee was paid no less than the amount the employee would have received under the award for the work performed over the year for which the annualised wage was paid (and if not, pay the employee the shortfall within 14 days). The review is to be conducted each 12 months from the commencement of the annualised wage arrangement and when the employee’s employment terminates; and
3. keep a record of all start and finish times, and unpaid breaks, which is signed or acknowledged as correct in writing by the employee (including electronically) for each pay period or roster cycle.

For other award-covered employees who are paid a salary under a contract of employment (including full-time employees covered by the Clerks Award), the answer is dependent on the current processes the employer has in place for monitoring hours worked. 

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Set-off clauses

The new annualised wage provisions do not invalidate contractual set-off arrangements and do not preclude an employer from continuing to enter into such arrangements. However, employers must ensure that an appropriate set-off clause is included in the employment contracts for those employees, which covers and specifies all award entitlements for the employees for all hours worked. 

This will require many employers to record the start and finish times for their employees to ensure they are being paid what they would be entitled to under the relevant award for the hours they are working.

Most of the requirements under the new annualised wage clause are new obligations that are not required under the current annualised wage clause in the Clerks Award. 

If a contractual salary arrangement is entered into, there is no need for employers to comply with all of the requirements under the new annualised wage clause in the Clerks Award. However, employers must ensure that:

1. the employee’s contract of employment contains an appropriate set-off clause; and
2. the amount actually paid to the employee each pay period is enough to satisfy all payments under the applicable modern award the employee is entitled to receive for that pay period. 

If employers do not:

1. comply with the requirements under the new annualised wage clause in the Clerks Award for full-time employees who are paid an annualised wage; OR
2. pay contractual salaries that accurately and adequately compensate award-covered employees for actual hours worked per pay period, they could be at a serious risk of underpayment claims by employees. 

Accordingly, it is very important that employers have sufficient record-keeping processes in place to ensure they are paying award-covered employees an amount that covers all of the employee entitlements they would otherwise be entitled to receive.

Aaron Goonrey is a Partner in Lander & Rogers’ Workplace Relations & Safety practice.