Significant Changes for Employers using Annualised Salary Arrangements

The Fair Work Commission has made changes to the annualised salary provisions in a number of Modern Awards, which will substantially affect the way that annualised salary arrangements are administered by employers. These changes came into effect on 1 March 2020 and all employers using annualised salary arrangement must ensure that their arrangements are compliant.

These amendments will apply to the Clerks – Private Sector Award 2010, which is a Modern Award that is commonly used by NECA members, with respect to their administrative employees. At this stage, the amendments do not apply to the Electrical, Electronic and Communications Contracting Award 2010 (Electrical Award) however, this may change in the future. In any event, it is important for all members to ensure that employees under the Electrical Award and on an annual salary are better off overall than what they would be under the Electrical Award.

What is an annualised salary?

An annualised salary arrangement is an arrangement whereby the employer pays an employee a fixed annual salary that is in consideration of the employee’s usual entitlements under the Modern Award. Such entitlements may include (but not be limited to):

1. minimum wage;

2. allowances;

3. overtime and penalty rates; and

4. annual leave loading.

What are the new requirements?

As of 1 March 2020, employers that engage employees under the annualised salary arrangement must:

1. provide the employee with information regarding the provisions of the Modern Award that are covered by the annualised salary;

2. record the “outer limits” of ordinary hours, which attract penalty rates and set out the overtime hours that are included as part of the annualised wage arrangement;

3. pay the employee for all hours worked in excess of the “outer limits” every pay cycle;

4. keep a record of the starting and finishing times of work, including any unpaid breaks taken and ensure that the employee acknowledges the record is correct every pay cycle;

5. every 12 months, or on termination of employment, calculate the remuneration payable under the Modern Award and compare it to the amount paid as an annualised salary. Note that if there is any shortfall, the employer must make good the shortfall within 14 days.

What should employers do?

Members should consider whether the changes to annualised salary arrangements apply to their business. As an employer, members should ensure that they:

1. review their current annualised salary arrangements to verify that they comply with the new requirements. This may include varying clauses in the contracts of employment by agreement or implementing a new contract with the relevant employee;
2. implement a written record that states what provisions of the Modern Award apply to the annualised salary and what the “outer limits” of hours worked are;
3. have implemented record-keeping practices that require applicable employees to track and submit timesheets for all hours worked by 1 March 2020. This can either be in writing or on an electronic portal;
4. in each pay cycle, pay an applicable employee for the hours worked in excess of the “outer limits” set out for that particular employee;
5. once a year and on termination of an employee’s employment, run a report comparing all applicable employees’ salaries for that year with their entitlements under the Modern Award, noting that the employee should be better off than what they would be under the Modern Award; and
6. if any underpayments are identified in the employer’s reports, make payment within 14 days to correct the shortfall.

It is important that employers comply with the annualised salary provisions in the relevant Modern Award, failing which you may risk underpaying your employees. If employers are found to be underpaying their employees, they will be required to make good the underpayment and may be subject to further compensation and/or civil penalties.

NECA Legal Wage Audits

Since the annualised salary arrangement amendments have come to the attention of employers in Australia, a number of large corporations have been found to be underpaying their employees that are on annual salary arrangements.

We do not want our NECA members to be caught out underpaying their employees, particularly in light of the substantial compensation and penalties that may become payable as a result of the underpayment.

CTI Lawyers are available to carry out wage audits to assist with complying with these annualised salary arrangements. Should you require assistance with a wage audit, please contact us on 1300 361 099 or email your enquiry to [email protected] and we can provide you with a tailored package to suit your needs. 

Please note that this industry release is not legal advice and should not be taken to be legal advice. Employers should seek legal advice when reviewing their annualised salary arrangements.