The Fair Work Commission’s changes to the annualised wage provisions in 18 awards take effect from 1 March 2020. The changes will also be made to a further 4 awards on a date yet to be determined. These provisions typically replace what had been referred to previously in the Awards as annualised salary arrangements, but in a select few of the awards, these provisions implement specific annualised wage arrangements for the first time.

The 22 affected awards are listed below. Employers who have annualised pay arrangements with employees who are covered by one of these 22 awards need to be aware of the significant changes that have been made.

Employers need to consider the impact these changes will have on their business and decide to either comply with the new provisions or choose another option, such as having an annualised salary clause under an employment contract (discussed further below) or reverting to paying employees strictly in accordance with the award. Please be aware that if a decision is made to change remuneration arrangements with an existing employee, then advice should be taken in relation to the appropriate approach to consultation on that change.

What are annualised wage arrangements?

Annualised wage arrangements (including, for example, ‘all up’ hourly rates or ‘all up’ weekly wages) typically provide that an employer can pay an employee an annualised wage in satisfaction of various award entitlements (such as ordinary hours, overtime rates, penalty rates, allowances and annual leave loading), provided the employee is not paid less than they would be if they were paid strictly in accordance with the award.

Many employers use annualised arrangements to reduce administrative burden and simplify payroll processes as it allows employers to pay a set pay each pay period or roster cycle, rather than having to calculate and pay award entitlements for actual hours worked each pay period or roster cycle.

What are the changes?

Some significant changes / additions have been made to 22 awards which employers need to be aware of.

There are some differences between the awards and employers will need to carefully review the new provision under their applicable award to ensure they are aware of the specific obligations.  At the time of this Alert, the Awards available on the Fair Work Commission website already contain the updated provisions and these can be found here.

Some of the changes include:

• Providing employees with details of the arrangement in writing – including:
  • the annualised wage figure, which award provisions are compensated for and how the annualised wage was calculated (including specifying each separate component and any overtime or penalty assumptions that were made);
  • the number of ordinary hours that attract penalty rates that are accounted for by  the annualised wage and the number of hours which would attract a penalty rate and overtime hours which the employee may be required to work in a pay period/roster cycle without being entitled to an amount in excess of the annualised wage (importantly, if the employee works in excess of the outer limit during a particular pay period/roster cycle, the employee must be separately paid for these hours in accordance with the award).

• Conducting reviews and reconciliations – employers must conduct reviews of the arrangements annually and on termination of employment to check that the employee was in fact paid at least as much under the annualised arrangement as they would have been if paid strictly in accordance with the award. If an underpayment is found this must be rectified in accordance with the award within 14 days.

• Keeping records – employers must keep written records of the start, finish and unpaid break times of each employee for the purpose of undertaking the above review and reconciliation. These records must be signed or acknowledged as correct in writing (including by electronic means) by the employee, each and every pay period/roster cycle.

What do these changes mean for employers?

The new provisions are much more onerous on employers and may mean:

• a greater administrative burden in setting and monitoring annualised wages;
• increased wages where employees work more hours than contemplated when the annualised wage was set; and
• the employer needs to make extensive administrative, time recording and payroll adjustments to comply with the provisions.

Employers will need to carefully consider whether using annualised wage arrangements under these awards is a viable option in light of the new requirements.

Many employers may be undertaking a similar process of wage assessment already, but will now need to refine their assessment processes to take into account the specific requirements of the relevant award clause.

Are there any other options?

Employers may decide to revert to paying employees strictly in accordance with the award for the actual hours worked each pay period/roster cycle. Employers will need to ensure they comply with the applicable award.

Employers could otherwise consider having an ‘annualised salary’ clause under an employment contract. This would allow an employer to still have an annualised pay arrangement with employees but not engage with or have to comply with the annualised wage provisions under the awards.

The Fair Work Commission specifically said that the award provisions do not affect the widely used and longstanding ability of an employer and employee to have an agreement in an employment contract to pay an annualised salary which compensates for identified award entitlements. In a decision delivered on 23 December 2019, the Commission stated (referencing an earlier decision):

“We note, as stated in paragraph [22] of the July 2019 decision, that employers may, pursuant to private contractual arrangements, pay employees in accordance with a salary arrangement that compensates for or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award.”

For an annualised salary clause under an employment contract to protect an employer and reduce risk, certain steps should be taken, including:

• The employer’s specific employee arrangements and potential risks need to be considered and identified.
• The clause must be properly drafted and the annualised salary figure must be carefully considered and calculated.
• The annualised salary must be regularly reviewed to ensure that the employee is not being underpaid as against the award (including assessment of the Award wording on entitlements relevant to pay periods or roster arrangements).

It may also be useful for an employer to retain calculations relevant to how the salary was calculated and what entitlements were taken into account, so that any future argument about the adequacy of such a salary can be met.

Again, if a decision is made to change remuneration arrangements with an existing employee, then advice should be taken in relation to the appropriate approach to consultation on that change.

What should employers do?

Employers who have an annualised pay arrangement with employees who are covered by one of the 22 affected awards must be on top of the new provisions and the potential other options available.

Employers need to:

• Review the new annualised wage provision in their applicable award and consider whether using the provision is viable for their business.
• If using an annualised wage arrangement under one of these awards, ensure you comply with the new requirements from 1 March 2020 (failure to comply may be breach of an award and the Fair Work Act). This may include:
  • checking that you have the award coverage, employee classifications and annualised wage amount correct;
  • advising employees of the required details of the arrangements in writing;
  • making any necessary changes to your administrative, time recording, payroll and auditing processes.
  • Consider the other potential options, such as reverting to paying employees strictly in accordance with the award or implementing an annualised salary clause in an employment contract. In respect of the latter option, advice should be obtained to ensure you are properly protecting your business.
  • Employers who already have an annualised salary clause in their employment contracts with employees who are covered by one of the 22 affected awards should have their employment contracts reviewed to determine if any variations are required.

Contact us for assistance

Aitken Legal can assist employers to review their specific employee arrangements and consider which option will best suit their business.

We can assist employers with understanding and implementing the new annualised wage provisions under the below awards to ensure your business is compliant and protected.

We can also assist employers by reviewing and/or considering and drafting annualised salary clauses in employment contracts.

18 Awards being amended effective 1 March 2020

Banking, Finance and Insurance Award
Broadcasting and Recorded Entertainment Award
Clerks – Private Sector Award
Contract Call Centres Award
Horticulture Award (new clause being inserted – this award did not previously have an annualised ‘salary’ provision)
Hydrocarbons Industry (Upstream) Award
Legal Services Award
Local Government Industry Award
Manufacturing and Associated Industries and Occupations Award
Mining Industry Award
Oil Refining and Manufacturing Award
Pastoral Award (new clause being inserted – this award did not previously have an annualised ‘salary’ provision)
Pharmacy Industry Award
Rail Industry Award
Salt Industry Award
Telecommunications Services Award
Water Industry Award
Wool Storage, Sampling and Testing Award

2 Awards effective 29 May 2020 

Hospitality Industry (General) Award
Restaurant Industry Award                                                               

2 further Awards being amended – effective date to be determined

Health Professionals and Support Services Award (new clause being inserted – this award did not previously have an annualised ‘salary’ provision)
Marine Towage Award