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Important Changes to Annualised Salary Arrangements


Many employers opt to pay their employees an “all-inclusive” annualised rate of pay which is intended to compensate for modern award monetary entitlements in relation to the base wages, overtime and penalty rates, allowances and loadings.

The Fair Work Commission has introduced a series of model salary annualisation clauses which, effective 1 March 2020, will see a number of notification, recordkeeping and wage reconciliation obligations being introduced into a number of modern awards.

As a result, it is important that all employers review their current annualised salary practices and arrangements and take steps to ensure that they will continue to remain compliant under the new modern award requirements when they come into effect.

How may the changes affect you?

The modern awards which will be impacted by this decision are detailed further down in this article, but do include the Clerks Private Sector Award 2010 and the Manufacturing and Associated Industries and Occupations Award 2010.

Effective 1 March 2020, the key obligations that employers need to be aware of in regard to the new standard clauses are:

  • The requirement to have employee agreement for an annualised salary arrangement. Some modern awards will require employee agreement to be obtained before entering into an annualised salary arrangement.
  • The method by which an employer must calculate an annualised salary. Some modern awards will provide that an employer may calculate the annualised wage by reference to specified assumptions regarding the overtime and/or other penalty rates which the employee may be required to work, and to specify the ‘outer limits’ of ordinary hours and overtime hours that are satisfied by the annualised wage. 

In comparison, other modern awards may prescribe that the annualised wage must be a minimum percentage that is to be paid in addition to the minimum weekly wage. Such awards will also specify the ‘outer limits’ of ordinary and overtime hours that will be satisfied by the annualised wage.

The implementation of the model clauses will further impose new obligations which will include the requirement for employers to:

  • Record the provisions of the award which are satisfied by the annualised wage in an annualised wage agreement.

This may include the requirement to:

- record the method by which the annualised wage has been calculated, and

- to specify each separate component of the annualised wage and any overtime or penalty assumptions     used in the calculation of the annualised wage

  • Record the ‘outer limits’ on the number of overtime hours or other penalty-rate hours which are to be taken as paid for by the annualised wage arrangement in the annualised wage agreement.
  • Pay an employee (in addition to the annualised wage) for any hours worked which exceed those ‘outer limits’ in accordance with the applicable provisions of the modern award (such as overtime and penalty rates). Such additional payments must be paid in the relevant pay cycle for the hours worked.
  • Maintain records of the start times and unpaid breaks for each employee and have employees sign, or acknowledge as accurate, that record in each pay cycle or roster cycle.
  • Undertake a reconciliation.

Every 12 months from the commencement of the annualised wage arrangement or upon termination of employment, there is a requirement to calculate the amount which would have been payable to the employee under the modern award and compare this against the annualised wage arrangement. If any shortfall is identified, the employer must rectify this within 14 days.

What Action is Required?

Prior to 1 March 2020, any employer who provides annualised salaries for employees to whom the annualised wage clauses will apply should:

  • Ensure that they are aware of the modern award/s that apply to their employees and the correct classifications for each employee, as this will impact on the calculation of an appropriate annualised wage
  • Ensure that they comply with the requirements of the new clause/s in respect of employees covered by the impacted modern awards, for example by:
  • ensuring that they have systems in place which allow recording of start, finish times and breaks,
  • ensuring that any hours performed outside the ‘outer limits’ will be remunerated in addition to the annualised wage arrangement,
  • ensuring that reconciliations are conducted on an annual basis or on the termination of employment
  • Identify and rectify any deficiencies in the annualised salary arrangements promptly and in accordance with the terms of an applicable modern award.
  • Ensure that any employment contract wording regarding annualised salaries is complaint with the new requirements.

Failure to comply with the terms of a modern award annualised wage clause, particularly in circumstances where an annualised salary is not sufficient to compensate for hours actually worked by an employee, will expose employers to the risk of underpayment claims and potential penalties for breaches of the modern award.

Which modern awards will change?

The three new annualised wage clauses will be added to or will replace existing annualised salary clauses in the following categories of modern awards.

Category 1

Category 1 includes modern awards which cover employees who work relatively stable hours. The annualised salary term for this category will not require an employee’s agreement to the introduction of an annualised salary arrangement.

This category includes:

  • Banking, Finance and Insurance Award 2010
  • Clerks Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010 (clerical employees only)
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

Category 2

Category 2 includes modern awards which cover employees who work highly variable hours and/or significant ordinary hours of work which attract a penalty rate. The annualised salary term for Category 2 modern awards will require employers and employees to agree on the application of an annualised salary arrangement.

This category includes:

  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Oil Refining and Manufacturing Award 2010 (non-clerical employees)
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Horticulture Award
  • Pastoral Award 2010
  • Health Professionals Award 2010

Category 3

Category 3 includes modern awards which currently provide that the annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award. The annualised salary term for Category 3 modern awards will require employers and employees to agree on the application of an annualised salary arrangement. The clause will only apply in respect to non-managerial staff.

This category includes:

  • Marine Towage Award 2010
  • Restaurant Industry Award 2010
  • Hospitality Industry (General) Award 2010

Should you require assistance with understanding your obligations please contact us at [email protected] or 1300 720 004.

Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.

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