On 1 March 2020, changes were made to a number of modern awards in order to provide and clarify annualised wage arrangements for full time employees. This included the requirement to notify employees in writing of the annualised salary payable to them, including how the annualised salary had been calculated. As part of these changed provisions, employers are obliged to undertake a reconciliation of any annualised wage arrangement at a minimum of every 12 months.
It has now been almost a full year since the commencement of the annualised wage provisions, and as such, effective 1 March 2021, employers will be required to undertake the first payment reconciliation. As part of this process, employers need to compare the amount of the annualised wage that was actually paid to the employees against the calculation of what remuneration would have been payable to the employee under the applicable modern award had the entitlements been paid separately based on the actual hours worked.
It is recommended that all employers, irrespective of whether annualised salary arrangements are being utilised or not, should review each employees’ rates of pay at least annually to ensure that they are being paid at least the minimum required to be paid under the relevant award.
In this article, we revisit annualised salaries and what your obligations are as an employer in relation to this area.
Annualised Salary Arrangements Under a Modern Award
Where an applicable modern award provides an annualised salary arrangement provision, employers are able to annualise an employee’s wages over a 12 month period. In doing so, the employee will be paid a set amount which is in satisfaction of additional remuneration entitlements provided for under the award.
However, it is important to note that the annualised wage arrangement clauses set out in modern awards do impose prescriptive requirements on the employer with respect to:
- keeping and maintaining records,
- providing notification to the employee, and
- undertaking regular reviews of the agreed arrangements.
Whilst there are some differences between the annualised wage clauses provided within the various awards, the following obligations on the employer are generally consistent across each of the awards in respect to annualised salary clauses and arrangements:
An employer is required to advise the employee and record the amount payable, including documenting:
- the terms of the award satisfied by the annualised wage arrangement and
- the outer limit of the number of hours (comprising of ordinary and/or overtime hours) for the pay period that applies to the employee.
which are compensated for by the annualised salary;
- For each pay period, the employer must check if an employee has worked outside the limits that the annualised salary covers and if so, pay them the excess for that pay period.
- At least every 12 months, or upon termination, the employer must undertake a reconciliation exercise to ensure each employee has not been underpaid. If any underpayment is identified (i.e., the employee has received less than what they would have received under the award for the work performed) then the employer must top up to compensate for the underpayment.
- The employer must diligently record and keep records of employee working hours (starting times, finishing times and unpaid breaks taken).
The Fair Work Act and its Regulations provide for stringent record-keeping obligations on employers. Failure to comply with these requirements can have serious consequences. Part 3-6, Division 3 of the Regulations requires all employers to keep particular records including pay, overtime, leave, superannuation and termination of employment records.
- Regulation 3.33 specifically requires employers to keep certain pay records, including rate of remuneration, amounts paid to employees, deductions, and amounts employees are entitled to be paid (e.g., incentive-based payments, bonuses, penalty rates, and loading).
- Regulation 3.34 requires an employer to keep the records where an employee is entitled to payment of a penalty rate or loading for hours that they have actually worked, as follows:
- the number of overtime hours worked by the employee during each day; or
- when the employee started and stopped working overtime hours.
In order to maintain these records, an employer has to record each employee’s working hours and any unpaid breaks taken. Such requirements apply even if an employee’s wage is “rolled-up” into an annualised rate.
If an employer does fail to comply with its record-keeping obligations and is found to have contravened a modern award and/or minimum wages provisions, the onus is on the employer to disprove the allegation. Failure to maintain records of an employees’ working hours will provide an employer with little ability to be able to disprove any alleged contraventions.
Significant penalties can arise from failure to comply with obligations under the Fair Work Act.
Tips for Checking and Ensuring Compliance
- Undertake regular salary reviews - Salary reviews should be undertaken at least annually, or when there has been a change to the minimum wage rates or entitlements under any applicable modern awards which applies to the workplace, so as to ensure minimum wage requirements are being met.
- Ensure compliance with the annualised salary provisions of an applicable award – All employers should ensure that the compliance obligations associated with annualised salary award provisions are being met.
- Review records and record-keeping practices – All employers should ensure compliance with record-keeping obligations under both the Act or the applicable modern award. Care should be taken that proper systems are in place to ensure that record keeping requirements are met.
If you require assistance with managing such matters, or if you require HR Advice, please contact the team at HR Advice Online on 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 and may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such