INSIGHT

New annualised salary requirements to take effect from March 2020

By Tarsha Gavin
Employment & Safety

In brief 2 min read

The Fair Work Commission has finalised its decision1 in relation to the annualised salary clauses to be inserted into a number of modern awards, with these clauses coming into effect from 1 March 2020 – although many employers are already feeling the impact.

How does it affect you?

  • Employers who want to pay an annual salary to employees covered by certain modern awards will need to comply with new notification, recordkeeping and reconciliation obligations to ensure employees are not disadvantaged.
  • Employers who currently pay annualised salaries to certain award-covered employees will need to take steps to ensure they are compliant with these requirements by 1 March 2020.

The decision - introducing new obligations

In April, we reported that the FWC, as part of its four-yearly review of modern awards, had proposed a series of model salary annualisation clauses for several modern awards (such as the Clerks – Private Sector Award and the Banking, Finance and Insurance Award)2. The purpose is to introduce a number of notification, recordkeeping and wage reconciliation obligations on employers who pay annualised salaries to their award-covered employees.

Following submissions from interested parties on four model clauses, a Full Bench of the FWC decided these clauses will be inserted into the relevant modern awards with effect from 1 March 2020.

The requirements of the model clauses are broadly similar, with a key difference being that some awards will require the employee's consent to enter into an annualised salary arrangement, while others won't. The key obligations employers need to be aware of are:

  • Employers will need to notify employees in writing of the annualised salary payable to them, the clauses of the modern award satisfied by the annualised salary, and how the annualised salary has been calculated. They will also need to specify the outer limit of ordinary hours that would attract a penalty rate or overtime hours the employee may be required to work in a pay period or roster cycle without being entitled to wages in addition to the annualised salary.
  • As the annualised salary arrangement must contain the outer limit of penalty and overtime hours, any excess hours worked in each roster or pay period must be paid in addition to the annual salary as overtime or with penalty rates. Importantly, this could limit the ability to 'set off' an employee's entitlements under the award against any additional or other amounts paid to them.
  • Employers must undertake an annual reconciliation every 12 months from the commencement of the arrangement (or on termination of employment) involving a comparison of the annual salary paid and the amount that would have been payable to the employee if they had been paid in accordance with the modern award. Any shortfall must be paid to the employee within 14 days. Employers must also keep a record of each employee's start and finish times and any unpaid breaks.

Footnotes

  1. 4 yearly review of modern awards – Annualised Wage Arrangements [2019] FWCFB 4368

  2. See our Insight: FWC inserts burdensome annualised wage clauses in modern awards