Annualised salaries for Award covered employees? Record keeping and reconciliation requirements

Overview

During a recent “4 yearly review” of Modern Awards, the Fair Work Commission (FWC) implemented changes to several Modern Awards that will affect many employers who pay annualised salaries to their Award covered employees. The changes will affect 19 Modern Awards that cover a significant portion of the workforce who generally work stable hours, including employees covered by the Clerks – Private Sector Award, the Legal Services Award, the Banking and Finance Sector Award and the Mining Industry Award (amongst many others).

The changes mean that, from 1 March 2020, affected employers must:

  • inform employees of the basis on which the employer has calculated the annualised salary, and identify which Award entitlements are covered by the salary;
  • keep records of the hours worked by those employees and ensure that employees acknowledge in writing that these records are correct in each pay period; and
  • undertake a review at least every 12 months to ensure that the salary adequately compensates the employee.

General

Many employers pay employees an annualised salary that covers all payment entitlements into a single, consistent, salary amount. For Award covered employees, an annualised salary is in excess of the minimum hourly wage required under the relevant Award so that it covers other Award entitlements such as overtime, penalty rates and loadings that might accrue in a given pay period.

A series of high profile cases have recently highlighted instances of underpayment of workers where, on review of hours worked, it was discovered they were not being paid in accordance with the Award. This includes:

  • Woolworths underpaying salaried staff by up to $300m;
  • MaDE Group (of which George Calombaris was a part owner) having underpaid staff by nearly $8m and then entering administration;
  • The Rockpool Dining Group being required to repay around $1.6m following investigations of around non-payment for overtime hours over 1 year; and
  • Top-tier law firm, Ashurst, self-reporting a potentially significant underpayment of its law graduates over a decade following an internal review.

These cases have sharpened the focus of the Fair Work Ombudsman and highlighted the issue with the broader public.

The amendments to the Modern Awards will formalise employers’ obligation to ensure that employees who are paid an annualised salary are not paid less than they otherwise would be under the relevant Modern Award.

Several employer groups made submissions to the FWC, arguing that affected staff are generally paid “well above” minimum Award requirements, and that the proposed changes will impose administrative burdens that would reduce staff autonomy and diminish the benefit of annualised salaries for both employers and employees.

Nevertheless, FWC decided that the only way to ensure that an annualised salary did not leave employees worse off was to require detailed record keeping and regular reviews.

As such, from 1 March 2020, 19 Awards will have a new “annualised salary” clause inserted. FWC has developed 3 categories of the new clause, and the precise application and requirements will depend on the particular Award.

What does it mean?

The specific requirements differ depending on the relevant Award, however, the main obligations will require employers to:

  • identify the Award benefits that are covered by the annualised salary;
  • record the “outer limits” for overtime hours and penalty hours that are covered by the annualised salary. Where the outer limits are exceeded in any pay period, those hours must be paid in accordance with the Award;
  • keep written records of employees’ start and finish times, and records of unpaid breaks. Employees must also sign or acknowledge these records as accurate in each pay period;
  • pay an employee in accordance with the Award where they work more than the “outer limits” in a particular pay period; and
  • undertake a review, at least annually, of the hours worked against the annualised salary, and pay any shortfall within 14 days.

What to do?

In anticipation of the changes, we suggest that employers:

  • identify employees who are covered by an affected Award and re-check the employee’s classification to ensure there is compliance with the Award;
  • clarify the Award benefits that the annualised salary covers, including identifying the “outer limits” of overtime hours or penalty hours that are included;
  • implement a system to record employees’ start and finish times which includes a method for the employee to acknowledge the record as correct;
  • update policies for working overtime / penalty rate hours; and
  • reconcile the hours worked against the annualised salary annually, or on termination.

If you have any queries or would like any further information about this article, please contact:

Joe Mullavey
Principal
M: 0416 794 061
E: jmullavey@pageseager.com.au

Published: 19 February 2020

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