By Adrian Faelli (Lawyer) and Michael Cochrane (Special Counsel)
The Full Bench of the Fair Work Commission has finalised* its examination of annualised wage arrangements as part of the 4 yearly Modern Awards review. From 1 March 2020, certain Modern Awards will contain 1 of 4 new ‘Model Clauses’ that expand an employer’s record-keeping, payment and reconciliation obligations with respect to employees who are paid an annual salary. These Model Clauses will replace the current annualised wage provisions.
For example, employers who deal with the Banking, Finance and Insurance Award 2010 (Banking Award) and Clerks – Private Sector Award 2010 (Clerks Award) will be subject to the incoming ‘Model Clause 1’.
Current state of play
Employers may currently pay employees covered by the Banking Award and Clerks Award an annualised wage in satisfaction of their minimum weekly wage, allowances, overtime and penalty rates, and annual leave loading under the respective Awards. Employers must ensure they advise the employee in writing of the annual salary payable and the provisions of the Award that are satisfied by payment of the salary. The annual salary must not be less than the amount the employee would have received under the Award otherwise, and must be reviewed annually.
Model Clause 1 – what’s different?
From 1 March 2020, in addition to the above, employers will now be required to:
- Advise affected employees in writing and keep a record of:
- the annual wage payable;
- the provisions of the Award satisfied by the annual wage;
- the method by which the annual wage is calculated, including specifying each separate component and any overtime or penalty assumptions used in the calculation; and
- the outer limit number of ordinary hours which attract payment of a penalty rate and the outer limit of overtime the employee may be required to work in a pay period without being entitled to amounts in excess of the annual wage.
- Ensure that any hours worked in excess of the stipulated outer limits are paid separately in accordance with the Award.
- Annually calculate the amount of remuneration payable to the employee under the relevant Award and compare it to the amount of annual salary actually paid to the employee (reconciliation). Where employees have been paid less under the annual salary than they would have received under the Award, employers must pay employees the shortfall within 14 days.
- Keep a record of start and finish times and any unpaid breaks taken in order to perform the reconciliation described above. The employee must sign or acknowledge this record as correct in writing each pay period or roster cycle.
What do employers need to do to ensure they are ready?
Employers who utilise annualised wage arrangements for certain employees will first need to consider which Model Clause affects the Awards they deal with and ensure that annualised salary clauses in contracts of employment are sufficiently precise and compliant with such Model Clauses in the relevant Award.
Taking Model Clause 1 as our example, employers must ensure they re-advise affected employees of the above matters in writing and ensure a record of this advice is created and maintained for 7 years. They must also ensure accurate reconciliations are completed annually (from the commencement of the annualised wage) and any shortfalls identified and rectified promptly.
Perhaps the most onerous change is the requirement for employees to sign or acknowledge records of their start and finish times and unpaid breaks each pay period/roster cycle. Employers will need to implement systems that ensure acknowledgement is obtained accurately and efficiently each pay period, noting the Full Bench has stipulated this may be obtained by electronic means, ensuring tech-savvy employers can implement efficient systems to obtain this agreement.
Overall, the incoming Model Clauses are more robust than the current annualised salary provisions and identify employer obligations with greater specificity. While the changes are aimed at ensuring that employees are less likely to be underpaid, they also place an additional regulatory burden on employers who, in part, utilise annualised wage arrangements to avoid regulation.
If you have any queries or concerns on how the new annualised salary provisions will affect your business, please contact us.
*Subject to final submissions in relation to the Clubs Award and Hospitality Award.