ALERT: Key Changes to Annualised Salaries Requirements
Modern Awards introduce new requirements for Annualised Salaries from March 2020
The Fair Work Commission has recently announced the inclusion of new annualised wage clauses into 22 modern awards on 1 March 2020. These provisions will place new obligations on affected employers paying their employees by way of annualised salaries. If you are covered by any of these modern awards, you should also check the application of it to any managers or other employees you consider to be salaried, or “above award.”
While there are some differences in the Award clauses they generally create the following obligations:
- Employers have to keep a written record of the annualised salary and which provisions of the award are compensated by it. The method used to calculate the annualised salary including the number of ordinary hours that would usually attract a penalty payment under the award; and the number of overtime hours which the employee is expected to work without additional payment.
- Employers have to conduct an annual audit from the commencement of the annualised salary arrangement or upon the termination of an employee’s employment. This audit must calculate the amount of remuneration that would be paid to the employee under the award, in comparison to their annualised salary. If the amount payable is more than the annualised salary, the employee must be paid the difference.
It is important to note that the new provisions only apply to full time employees.
What does this mean for your business?
It is common practice for employers to pay employees a salary which is intended to compensate or ‘set-off’ all modern award monetary entitlements. The alternative is for employers to pay wages and other monetary entitlements separately as and when they fall due.
Where an employer fails to strictly comply with the terms of a modern award annualised salary clause, employers may be exposed to the risk of underpayment claims and potential penalties for breaches of the modern award.
The new annualised wage arrangement clauses do not prevent an employer and employee implementing an annual salary arrangement through the use of an appropriate set-off clause in an employee’s employment contract.
A set off clause in a common law contract will only be effective if it is appropriately drafted and the salary is sufficient to fully meet the employer’s award obligations. It is therefore important to ensure that the contractual provision is carefully drafted and the annual salary is sufficient to satisfy all award obligations including overtime.
What do you need to do?
By 1 March, all businesses need to identify whether they are required to comply with the terms of any of the model clauses, and then take steps to ensure that they are compliant. This will involve preparing relevant communication to employees and may involve making changes to their record keeping and payroll procedures.
Not sure if you comply?
- Unsure if you need to comply with the new provisions?
- Unsure if you are covered by the affected awards?
- Require assistance with the compliance and implementation of the new provisions, including looking at possible set-off clauses?
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