As part of its four-yearly review of modern awards, the Fair Work Commission (FWC) handed down a decision to insert two new ‘model’ clauses impacting the payment of Annualised Salaries to employees covered by certain awards. These changes are primarily intended to address a lack of uniformity among the range of clauses currently found in the modern awards.
The FWC has established the commencement date for these changes in three ‘tranches’ alongside some other, new minor changes. The first tranche commenced on 4 February 2020, with tranche two and three to be implemented by 1 March 2020.
Modern Awards Affected:
• Banking, Finance and Insurance Award 2010
• Hydrocarbons Industry (Upstream) Award 2010
• Legal Services Award 2010
• Mining Industry Award 2010
• Oil Refining and Manufacturing Award 2010
• Salt Industry Award 2010
• Water Industry Award 2010
• Wool Storage, Sampling and Testing Award 2010
• Clerks – Private Sector Award 2010
• Contract Call Centres Award 2010
• Local Government Industry Award 2010
• Manufacturing and Associated Industries
and Occupations Award 2010
• Pharmacy Industry Award 2010
• Rail Industry Award 2010
• Pastoral Award 2010
• Broadcasting and Recorded Entertainment Award
• Horticulture Award 2010
• Telecommunications Services Award 2010
What are the Changes?
A model clause will be introduced into the affected Modern Awards. This clause permits the employer to pay a full-time employee an annualised wage so long as they are in satisfaction with the minimum weekly wages, allowances, overtime and other penalty rates and annual leave loading.
The model clause also requires employers to advise the employee in writing, and keep a record of the annualised wage payable, the method of calculation and the outer limits of both ordinary and overtime hours. If the hours worked by an employee runs in excess of the outer limits, the hours must be paid separate from the annualised salary. The annualised wage must also be no less than the hourly rate paid over a year, and the annualised salary must be reviewed, and any shortfall for hours worked must be paid within fourteen days. The changes also exclude any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.
Risks and Risk Management
The most significant risk for employers at the onset of these model clauses being implemented, is the risk of underpaying an employee or creating an Annualised Salary Agreement (ASA) that does not comply with the terms of the modern award. When an ASA is introduced, employers must be particularly proactive in ensuring that the ASA is sufficient to cover the hours actually worked by the employee, and that there is no risk of the salary being under the award or shortfalls remaining unpaid. Another risk facing employers at the outset of these changes is believing that, so long as they pay over the award amount, there will be no other requirements. However, if the ASA is not in line with the annualised salary requirements, such as the requirement to have employee consent, there is no protection from an underpayment claim arising.
As there will be alterations or additions to the annualised salary requirements in the modern awards, employers may find that while they previously adhered to the requirements, they now fall short. To minimise such a risk, employers should be aware of their modern award and whether there is or will be an ASA clause inserted or modified in that award. Where this is the case, employers should ensure that their ASAs are in accordance with the terms of the modern awards and attempt to identify and rectify any deficiencies as soon as possible.
The Annualised Salary Checklist
To ensure a smooth transition during these changes, employers in the affected industries should:
1. Review the model clauses and compare them to any relevant agreements or current Annualised Salary Agreements in place
2. Ensure that if there is an Annualised Salary Agreement, that it is better or equal to the specific industry award
3. Identify the outer limit of ordinary and overtime hours employees could work and the amount payable to the employee
a. Consider previous working hours and patterns of employees to gauge an accurate outer limit
4. Once an outer limit is set, make additional payments to employees if they work hours in excess of the outer limits specified in the agreement
5. Redraft salary clauses and issue contract variations to affected employees
6. Implement a time recording system, such as Xero or Time Clock Plus, to effectively record start times, finish times, breaks, leave and overtime.
7. Conduct annual reconciliations
8. Improve communication between departments and set up prodesses for checking payroll compliance
9. Review and upgrade payroll systems to ensure entitlements are calculated correctly
10. Consider options outside of Annualised Salary Agreements, such as:
a. Off-set clauses;
b. Individual Flexibility Agreements; or
c. Annual guarantee of earnings.
About the Author
Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability.