1 March 2020
CURRENT STATE
Annualised wage arrangements are currently allowed under several Modern Awards. These clauses allow an employer to pay an annual salary provided they are calculated in line with the Award. Current annualised wage arrangements are typically relatively simple to administer as they allow a reasonable amount of flexibility and convenience. Traditionally, annualised wage arrangements have been seen by employers as an easy alternative to strictly complying with the conditions under the relevant Modern Awards which can be quite complex to administer.
WHAT ARE THE CHANGES?
One of three model clauses will be implemented across multiple Modern Awards come 1 March 2020. These clauses will introduce a number of notification, record-keeping and wage reconciliation responsibilities on employers who pay annualised salaries to their award-covered employees.
If an employer chooses to use an annualised salary arrangement, they must do so by calculating the minimum weekly wages, allowances, overtime penalty rates, weekend & other penalty rates and annual leave loading prescribed under the Award. The annualised salary must not be less than the minimum amounts payable under the Award.
The employer must advise the employee in writing and keep a record of:
The annualised wage to be paid
The provisions of the award that will be covered by the annualised wage
How the annualised wage is calculated, including each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation
The outer limit number of ordinary hours which would attract payment of penalty rates under the award in a pay period or roster cycle
The outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle.
The employer must keep a record of the start and finish times, including any unpaid breaks taken for each employee that is covered by an annualised wage arrangement. This then needs to be signed by the employee (electronic signature will suffice) or an acknowledgement provided in writing stating their hours of work are correct, each pay cycle.
Each 12 months following the commencement of the annualised wage arrangement or upon termination, the employer is required to calculate based on the employees actual hours of work, what the employee should have had paid under the Award and compare this to the annualised wage actually paid to the employee. If an employee works hours in excess of either of the outer limits within their contract and those hours are not covered by the annualised wage - Any shortfall must be paid on top of the annualised wage already paid with any amount being paid to the employee within 14 days.
Model Clause 1: Covers Awards for employees who have relatively stable for hours of work. Those covered by Model Clause 1 require no agreement between an employee and employer. If an employer chooses to use Annualised Salaries they must do so with reference to the specified assumptions of overtime and penalty hours worked.
The Awards that will have Model Clause 1 Inserted are:
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
Model Clause 2: Covers Awards for employees who work highly flexible hours with significant ordinary hours of work attracting penalty rates. Those covered by Model Clause 2 requires agreement between an employee and employer to use an Annualised Salary with the ability for the Agreements to be terminated within 12 months, or anytime by written agreement.
The Awards that will have Model Clause 2 Inserted are:
Broadcasting and Recorded Entertainment Award 2010
Health Professionals Award 2010 (supervisory and managerial staff only)
Horticulture Award 2010
Local Government Industry Award 2010
Manufacturing and Associated Industries and Occupations Award 2010
Oil refining and Manufacturing Award 2010 (non-clerical employees)
Pastoral Award 2010
Pharmacy Industry Award 2010
Rail Industry Award 2010
Model Clause 3: Covers Awards that provide for an annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award. Those covered by Model Clause 3 requires agreement between an employee and employer and these Agreements can be terminated with 12 months, or anytime by written agreement.
The Awards that will have Model Clause 3 Inserted are:
Hospitality Award 2010 (non-managerial staff)
Marine Towage Award 2010 (non-managerial staff)
Restaurant Award 2010 (non-managerial staff)
WHY INTRODUCE THESE CLAUSES?
As part of the 4-yearly review of Modern Awards, the Fair Work Commission (FWC) looked into the lack of consistency across a range of annualised wage clauses in a number of Awards. Under section 139(1)(iii) of the FW Act, there is a requirement to ensure employees were not disadvantaged using annualised salaries - however this was not that case with the terminology found in the current Awards. The introduction of the notification, record keeping and wage reconciliation obligations on employers will ensure employees are no longer disadvantaged with the use of annualised salaries.
HOW DOES THIS IMPACT YOUR BUSINESS?
The introduction of these clauses will drastically change the way employers enter and manage annualised wage arrangements. You may be thinking these new clauses don’t apply to your business however many workplaces will have, as an example, Administration and Accounts staff who are covered by the Clerks Award - which will have Model Clause 1 introduced come March.
WHAT DO YOU NEED TO DO?
The new annualised wage arrangements will be a task to implement and time consuming to manage ongoing. Given it’s less than a month until these changes are effective, it’s definitely time to look at your current state if you have not already done so - effectively do a stock-take on where you are at now so you know your position. From there, it’s about looking at where your gaps are and creating a plan to ensure you are compliant.
As a start, we recommend you:
Review and Identify who in your organisation is covered by what Award.
Review your contracts & re-issue contracts for those that need
Assess how you will collect your employees start, finish and break times. How you will have the employee sign or acknowledge their hours of work?
Assess how will the 12-month review process work in your business?
Assess your current resources - who will own these new obligations in your business? Who has the capability of managing this?
These changes are quite detailed and whilst there may be a lot of information out there explaining what the changes are, you may be asking how do you actually implement this? If you want to talk through the details of the change and how this impacts your business specifically or if you are unsure where to start, drop us a line below and we will be in touch to discuss further.