Changes to Awards - Annualised Salary - 1 March 2020

Employers should be aware of upcoming changes to many Awards that will have effect from 1 March 2020.

Annualised salary

Under a contract of employment it has always been possible to pay Award covered employees an annual salary, broken down to each pay period, which encompasses any financial entitlement arising out of a relevantly applicable Award. Numerous Awards had references to such arrangements or were silent.

Under such an "all up" or "all inclusive" rate the contract would specify which Award entitlements were included in the annualised salary. Often employers would include otherwise regularly paid allowances, annual leave loading and other entitlements. They would do this for administrative ease rather than having to calculate the same entitlements each pay period and the employee had a greater level of assurance as to their regular take home pay.

So long as the contract contained a "set off" provision and reviews were periodically undertaken the employee would not be disadvantaged when the salary components were compared against otherwise applicable Award entitlements.

The changes

Although such annualised arrangements are still completely permissible, 22 of the federal system Awards will have revised or new 'model terms' interleaved that will require employers to undertake some consideration. Those new Award terms refer to "annualised wages" and create a range of administrative requirements on employers. The exact requirements will depend upon the specific Award that applies to your employee.

A list of those affected Awards can be seen here.

What you need to do

Employers need to:

  • Identify if you have 'annualised salary' arrangements currently in place for any Award covered employee.
  • Identify which specific Award applies to the employee.
  • Review the terms of the Award for any incoming or altered 'annualised wage' clauses and consider what those requirements will mean for your current arrangements.
  • Compare the Award terms against the contractual terms to ensure the annualised arrangements that are currently in place comply with any new Award requirements.
  • Ensure the employee continues to be paid sufficiently compared to the relevant Award.
  • Make any appropriate changes to the current annualised salary arrangements to ensure compliance with the Award terms.
  • Implement any administrative requirements resulting from the new Award provisions. These can include the requirement to undertake and evidence a yearly reconciliation against the Award, and may also include the requirement to keep time records for those annualised salary employees so as to evidence they are not being underpaid for any overtime.
  • Keep appropriate records of the business having undertaken these processes.

New administrative requirements (examples)

  • Keep records - keep records of each employee's start and finish times as well as any unpaid breaks taken by the employee. Including evidence that its correct;
  • Conduct an annual reconciliation - calculate the amount of remuneration that would have been payable to the employee under the terms of the modern award and compare this to the wage actually paid, on a 12 monthly basis or on termination of employment. Where an employee has been paid less than their minimum entitlements under the relevant modern award, the employer must rectify this within 14 days;
  • Notify employees - advise employees and keep a record of which provisions of the modern award have been satisfied by the annualised wage, and set out the methodology of calculating the annual wage, including overtime and penalty rate assumptions;
  • Set outer limits - advise employees and keep a record of the "outer limit" number of penalty rate hours and overtime hours, which are built into the annualised salary.

Employers who don't have annualised salary arrangements with employees are not required to undertake any amendments, although we would recommend reviewing such clauses for your general understanding of the issue.

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