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Is it time to review your annualised wage arrangements?

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An increase to the minimum wage in Modern Awards means it is time to review your annualised wage arrangements!

On 15th of June 2022, The Fair Work Commission’s Expert Panel awarded a wage increase of at least 4.6% for employees covered by Modern Awards, which for the majority of Modern Awards, is due to take effect from 1 July 2022.

With consideration to Modern Award covered employees, the Panel determined that Modern Award wage rates above $869.60 will receive a 4.6 per cent adjustment and wage rates below $869.60 will be increased by $40 per week ($1.05 increase per hour).

This decision will trigger a number of adjustments to employer obligations, so it is possible that from 1 July 2022 certain annualised wage arrangements will no longer be compliant.

An annualised wage arrangement is an ‘all-inclusive’ salary that compensates employees for the relevant minimum wage and a variety of Modern Award entitlements. Several Awards outline annualised wage entitlements by using a FWC Model clause. This clause provides that an annualised wage:

“must be no less than the amount the employee would have received under this Award for the work performed over the year for which the wage is paid”

Are you still compliant?

Because of this, it is suggested that employers conduct an annual reconciliation of their annual wage arrangements and a review of their annualised wage arrangements against any entitlements that will be increased in line with the Fair Work Commission’s wage decision.

Companies who facilitate wage reconciliations internally often find the process to be extremely complicated and time consuming.  However, there are severe risks for companies not investing in these annual processes.

2021 saw Victoria follow Queensland’s footsteps by making wage theft a criminal offence. Those in Victoria who commit an offence could face fines of up to $218,088 or up to ten year’s imprisonment for individuals, and a fine of up to $1,090,440 for companies.

Criminal prosecution is not the only risk involved however, as the FWO can also enforce a civil penalty. Over the last 5 years, Australia has seen large corporations such as Woolworths, Target and Qantas be subject to underpayment penalties, demonstrating businesses of all sizes are susceptible to underpayment risks and showing the importance of completing satisfactory due diligence annually.

In 2021, the Fair Work Ombudsmen (‘FWO’) audited 698 workplaces.

The overall non-compliance rate found through these audits for the year was 81%, with the most common contraventions relating to:

  • Underpayment of hourly rates (13%)
  • Penalty rates for weekend work (9%)
  • Annual leave (9%).[1]

Within the Corporate Sector, a number of companies had also self-reported non-compliance to the FWO, resulting in 54,500 employees being back-paid a total of more than $100 million.

These figures have risen since last year. In 2020, the non-compliance rate was only 71% with approximately $90 million being back-paid to 12,000 employees.

[1] fworoce-annual-report-2020-2021.pdf (fairwork.gov.au)

Avoid risk of non-compliance

Mapien has assisted several companies that are considered high-risk with facilitating payroll audits and ensuring compliance, conducting audits in hospitality, community services, and mining over the past 12 months. Points of non-compliance were found in nearly all audits completed.

During this time of change, it is more important than ever for businesses to review and audit their wage arrangements, to avoid any risk of non-compliance

Interested to learn more?

If you would like more information on the impact the minimum wage increase might have on your organisation, please contact us here and a Mapien Workplace Strategist will be in touch ASAP.

For further detail in relation to the Commission’s recent wage decision, please refer to our Article, FWC announces 5.2% increase to National Minimum Wage

Written by
Rebecca Kirupairajah
With a naturally warm and approachable manner, Rebecca quickly builds rapport and gains the respect and trust of her colleagues and the clients she works with. Working across the broad range of Employment & Industrial Relations functions, Rebecca is focused on providing high quality work that is timely, tailored and innovative.