Changes To Annualised Salaries In The Modern Awards

Annualised salary arrangements allow an employer to pay an employee an annual salary that encompasses all minimum weekly wages, allowances and penalties. 

Such arrangements are commonly utilised to avoid the administrative burden of paying hourly rates and associated penalties and allowances. However, as part of the four-yearly review of modern awards, the Fair Work Commission has introduced changes to the annualised salaries clause set out in a range of modern awards – and it is catching many employers out.

Annualised Salaries

The changes, which were introduced on 1 March 2020, apply to a number of modern awards, including (but not limited to):

• Banking, Finance and Insurance Award
• Clerks – Private Sector Award
• Health Professionals Award
• Legal Services Award
• Manufacturing and Associated Industries and Occupations Award
• Pharmacy Industry Award

For those parties to an annualised salary or wage arrangement, the changes are significant:

1. If an employer and employee enter into an annualised salary arrangement, the employer must confirm the agreement in writing.  The employer must also keep a record of the particulars of the arrangement, including the amount payable, the terms of the award satisfied by the arrangement and the outer limit of the number of ordinary hours or overtime hours in a given pay cycle that the annualised salary compensates for.
2. The arrangement must not result in the employee being paid less than they would have if paid in accordance with the award.
3. If an employee works in excess of the outer limits set out in the arrangement, they must be compensated for same, calculated with reference to the relevant award.
4. The employer must complete an annual reconciliation (or on termination of the employee’s employment) to calculate the amount payable to the employee under the award, and compare same to the annualised salary actually paid.  If the employer identifies a shortfall, that shortfall must be paid to the employee within 14 days.
5. In order to comply with the above, the employer must also keep a record of the employee’s hours worked, to be verified by the employee each pay cycle.

It is important to note that the above changes are expected to extend to other awards in the near future.

Common law contracts and off-set clauses

There is, however, an alternative for employers who wish to take advantage of an annualised salary arrangement, without the administrative burden and complexity involved in calculating hourly rates (including penalties and allowances) in accordance with the award.  An employer can instead utilise a common law contract and off-set clause.  We note such common law contracts and off-set clauses are not affected by the changes mentioned above.

Essentially, an employer can enter into an employment contract with an employee to pay him or her an all-inclusive salary or wage that is greater than the base rate provided for in the relevant award.  Such contracts must also include a provision that the annualised salary, being higher than the base rate set out in the award, is paid in satisfaction of the employer’s obligations to pay penalties and allowances under the award.

It is important to note, however, that an improperly drafted contract could leave an employer open to an underpayment or unpaid wages claim.  Similarly, such claims may also arise from failure to comply with a relevant award.  Further, failure to comply with an award, or otherwise breach the Fair Work Act 2009, could result in the imposition of significant penalties.

Whether it is drafting employment contracts or advising on your obligations under an award, our team can assist you with all of your employment law needs.  Contact one of our experienced employment lawyers either by phone on 07 4963 2000 or through our online contact form below.