From 1 March 2020, new annualised salary clauses will be introduced into a number of modern awards. These changes come about as part of the Fair Work Commission’s four-yearly review of the modern award regime.
There will be three model annualised salary clauses which replace the existing clauses that already appear in many modern awards or which will be inserted into other awards which did not previously have annualised salary clauses.
The new annualised salary model clauses will introduce new notification, record-keeping and wage reconciliation obligations on employers whose employees are covered by the relevant modern awards and who may choose to utilise these arrangements.
Common awards affected include the Clerks – Private Sector Award 2010, the Manufacturing and Associated Industries and Occupations Award 2010 and the Hospitality Award 2010.
Analysis
Since the new clauses are quite prescriptive, on a practical level, they may prove to be too unwieldy and too risky for employers to meaningfully utilise.
It is therefore reassuring that the Fair Work Commission has clearly stated that employers and employees are not obliged to rely on award annualised salary clauses and can continue to utilise common law contracts with “set-off” clauses.
The Commission stated:
[22]…an employer is able to pay an employee to whom an award applies an annualised salary arrangement that compensates for or “buys out” various identified award entitlements without engaging with any annualised wage arrangement clause in that award and without there needing to be an annualised wage arrangement clause in that award… The model clauses do not seek to invalidate or regulate any such contractual arrangement.
Common law contracts with “set-off” clauses allow employers to set flat salary arrangements which can reduce the administrative burden of reconciling complex hourly rates, overtime and penalty rates, allowances, leave loading and other obligations in modern awards.
These contracts with “set-off” clauses work by providing a rate of pay which is higher than the award base rate and including a term that allows the “over award” salary component to be applied against any other award entitlements which may be payable, such as overtime rates and allowances. The “over award” component must obviously be sufficient to do so. The clause must be carefully drafted to clearly identify relevant entitlements which can be “set off”.
Whilst “set-off” arrangements are useful, they are not “set and forget” clauses. Awards commonly require that entitlements must be paid within the corresponding pay period or roster cycle. So contractual salaries must be set at a level to account for variations in penalties and allowances, or else top up payments must be paid, when they are earned, to ensure award compliance. As well as that, employers must consider how and whether it is necessary to make and keep records of working patterns to enable meaningful reconciliation each pay period.
The New Model Clauses
Employer Obligations Common to All Awards
Employers must:
- record the award provisions which are satisfied by the annualised salary.
- record the method by which the annualised salary has been calculated, including specification of each separate component of the annualised salary and any overtime or penalty assumptions used.
- record the “outer limits” of ordinary hours which attract penalty rates and overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised salary.
- in any pay period or roster cycle, pay an employee for any hours in excess of the identified outer limits.
- each 12 months, or on termination of employment, calculate the remuneration payable under the award and compare it to the amount paid as an annualised salary, and make good any shortfall within 14 days.
- keep a record of the start and finish times of work and any unpaid meal breaks. Employees must sign or acknowledge the record as correct in writing each pay period or roster cycle.
First Model Clause
Applies to awards:
- 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
Effects:
This category includes modern awards for employees who work relatively stable hours.
They do not require an employee’s agreement to the introduction of an annualised salary arrangement.
Employers may calculate the annualised salary, but must do so with reference to specified assumptions about overtime/penalty rates.
Second Model Clause
Applies to awards:
- 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
Effects:
This category includes modern awards for employees who work highly variable hours and/or significant ordinary hours of work attracting penalty rates.
They require that an employer and an employee agree to the introduction of an annualised salary arrangement.
The agreement may be terminated on 12 months’ notice or at any time by written agreement.
Third Model Clause
Applies to awards:
- Hospitality Award 2010 (non-managerial staff)
- Marine Towage Award 2010 (non-managerial staff)
- Restaurant Award 2010 (non-managerial staff)
Effects:
This category includes modern awards which provide that the annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award.
They will require that an employer and an employee agree to the introduction of an annualised salary arrangement.
The agreement may be terminated on 12 months’ notice or at any time by written agreement.
For more information about the changes being introduced in March 2020, or if this article has raised questions about the employment contracts that you utilise in your business, please contact David Thompson or Richard Scougall in our Employment Law team on 03 8602 9252.
