As part of its four-yearly review of modern awards, the FWC determined that most employers who pay annualised salaries will, from 1 March 2020, need to ensure that systems and processes are in place which are compliant with the terms of new model ‘annualised wage arrangements’.
These annualised wage agreements allow for the consolidation of specified award entitlements (including minimum weekly wages, allowances, penalty rates and annual leave loading) into a fixed annual wage.
The model clauses expand employer obligations with regards to employee notification and record keeping as well as wage reconciliation with respect to employees who are paid an annualised wage or salary.
Employers are required to inform employees of the ‘outer limit’ of any penalty rate hours and overtime hours. These changes are aimed at ensuring that employees are not disadvantaged by annualised arrangements.
Notwithstanding these changes, employers can continue using annualised salary clauses or ‘off setting’ clauses in contracts of employment in preference to adopting an annualised wage arrangement.
However, for employees covered by awards with annualised salary arrangement provisions and who pay annualised wages or salaries, FWA stipulates that employers should:
- Ensure they have systems in place to accurately record the hours worked by those employees including their actual start and finish times and the amount of unpaid break time taken, each day or shift.
- Ensure that any annualised wage arrangements for each employee will be compliant with the relevant award.
- Review annually, and upon termination that the employee does not receive less than they would have received under the award. Where there is a shortfall, an additional payment must made with 14 days to avoid potential underpayment penalties.
With annualised salaries the onus of proof is on employers to disprove any underpayment claims. Failure to comply with the new annualised salary arrangement provisions carries the risk of having to make back payments to current employees and past employees, as well as the possible requirement to pay penalties for award breaches.
Non compliance
A failure to comply with a term of a modern award can attract penalties of up to $630,000 per breach for a company. There have recently been some high profile cases with the FWO taking action against large companies for award underpayments, some of these are iconic national companies such as Coles, Woolworths and Qantas.
Risk mitigation
There a number of actions employers can take to mitigate the risk of award underpayment and non compliance, these include:
- Mapping their workforce against the relevant award/s.
- Monitor closely any changes to modern awards including pay rate increases and the outcome of the 4 yearly formal reviews of awards by FWA.
- Review contracts of employment to ensure consistency with modern award terms especially relating to annualised salaries and their method of calculation.
- Review annually, and upon termination that employee on annualised salaries do not receive less than they would have received under the award.
- Check compliance of human resources and payroll policies, systems and processes in relation to modern awards provisions such as record keeping.
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