By Nick Tindley
In 2019, the Fair Work Commission (FWC) released a decision which confirmed changes for a number of Modern Awards in respect of full-time employees paid by way of an annualised salary.
The decision confirmed that a selection of Awards would have one of four versions of a model annualised salary clause, for full-time employees, inserted.
These new annualised salary clauses will take effect from 1 March 2020.
This means that employers impacted by the decision must be compliant come 1 March 2020, even if this falls midway through a pay cycle.
Below is a list of the Modern Awards impacted by this decision and, following that list, advice on when and how your staff may be impacted. At the end of the memo there is also information on what you need to do next.
Which Awards will have new annualised salary clauses introduced?
Model Clauses 1 and 2 will be incorporated into the following awards
Model Clause 1 applies to the following 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
Model Clause 2 applies to the following Awards:
- Broadcasting and Recorded Entertainment Award 2010
- Local Government Industry Award 2010
- Manufacturing and Associated Industries and Occupations Award 2010
- Pharmacy Industry Award 2010
- Rail Industry Award 2010
- Horticulture Award
- Pastoral Award 2010
What do the new Award Annualised Salary clauses require from you?
Model Clauses 1 and 2 are of substantially the same effect, save that Model Clause 1 can be implemented without the agreement of the employee while Model Clause 2 requires written agreement with the employee before the arrangement commences.
Key common features of Model Clauses 1 and 2 are that they require the employer to do the following:
1) Advise or agree with the employee in writing regarding the following:
- the value of the annualised wage they will be paid;
- which provisions of the applicable award will be satisfied by the annualised wage;
- the method by which the annualised wage has been calculated (including specification of each separate component, and any overtime or penalty assumptions used in the calculation);
- the outer limit number of ordinary hours attracting penalties and the outer limit number of overtime hours which an employee may be required to work in a pay period/roster cycle without being entitled to additional remuneration; and
- that where the employee works in excess of the outer limit of hours, they will be remunerated in addition to the annualised wage in accordance with the Award.
2) Keep a record of all matters in (1);
3) Ensure the annualised wage is no less than the amount that employee would have received under the award, assessed over a year (although if the employment ends earlier than the full year, the assessment must be made in respect of the period worked);
4) On a 12-month basis (on the anniversary of the entering into the annualised wage arrangements), perform a calculation to ensure the annualised wage is no less than the employee would have earned if they were paid an hourly wage according to the applicable award;
5) Make a top up payment of any shortfall identified in (4) within 14 days;
6) Keep records of the employee’s starting and finishing times of work, and any unpaid breaks taken.
7) Ensure the records in (6) are signed by the employee or acknowledged as correct in writing (including digitally) each pay period/roster cycle.
The remaining Awards for which Draft Determinations have been published are:
- Restaurant Industry Award 2010 which can be found here;
- Hospitality Industry (General) Award 2010 (only applicable to non-managerial staff) which can be found here and;
- Marine Towage Award 2010 which can be found here.
These clauses share the common feature that, unlike Model Clauses 1 and 2, they specify a rate (as a percentage above minimum award rates) that an employee can be paid in satisfaction of listed award entitlements, including penalty rates. Save for managerial employees under the Hospitality Award, they still require a record to be kept of hours worked, and contain a clear requirement that employees are not disadvantaged by the arrangement.
As an example, the Restaurant Industry Award clause requires employers to do the following in order to enter into an annualised salary arrangement under the Award:
1) Enter into a written agreement with the employee that includes the following:
- The annualised salary that is payable;
- Which provisions the Award will be satisfied by payment of the annualised wage; and
- The outer limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of 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 wage (this point will also be further clarified by the FWC in due course).
2) Give the employee a copy of the agreement and keep the agreement as a time and wages record.
3) Ensure that if the agreement is terminated, it is terminated in the following manner:
- by the employer or the employee giving 12 months’ notice of termination, in writing, to the other party and the agreement ceasing to operate at the end of the notice period; or
- at any time, by written agreement between the employer and the individual employee.
4) Ensure the annualised wage is no less than the amount that employee would have received under the Award, assessed over a year (although if the employment ends earlier than the full year, the assessment must be made in respect of the period worked);
5) On a 12-month basis (on the anniversary of the entering into the annualised wage arrangements), perform a calculation to ensure the annualised wage is no less than the employee would have earned if they were paid an hourly wage according to the Award;
6) Make a top up payment of any shortfall identified in (4) within 14 days;
7) Keep records of the employee’s starting and finishing times of work, and any unpaid breaks taken; and
8) Ensure the records in (7) are signed by the employee or acknowledged as correct in writing (including digitally) each pay period/roster cycle.
So how much is going to change?
Annualised salary arrangements have been a feature of a number of Modern Awards since 2010. Paying employees an annual salary under a common law contract where the salary is used to off-set award entitlements has been common practice for much longer. It is important to note that the new provisions do not change this. In each of the key decisions surrounding the implementation of these provisions the FWC has said:
“Employers may, pursuant to private contractual arrangements, pay employees in accordance with a salary arrangement that compensates for or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award.”
“The model clauses do not seek to invalidate or regulate any such contractual arrangements.”
Employers who employ people under annualised salaries via contracts of employment can continue to do so where the employment contract has an appropriate off-set clause recognising that the salary paid to the employee is in compensation for those nominated award entitlements. This addresses the payment obligation, but not the record keeping obligations that will commence in the Awards described above. Care must also be taken if the contract incorporates the annualised salary provisions of the Award.
Put another way, these Award annualised salary changes will only impact employee entitlements who have annualised salaries established in accordance with the relevant Award (and those who do not have formalised contracts in place).
The situation is less clear in relation to record keeping requirements. With the focus of the FWC decision being on entitlements, it raises the question of whether the record keeping obligations under Model Clause 1 and 2 apply. Our recommendation to clients is that they adopt a cautious approach to this, and not just because there is a possibility that the Award record keeping requirements will apply. There is a continuing focus from Government and regulators on compliance with minimum employment standards. The only way for an employer to properly evidence compliance is to be able to demonstrate the hours that employees work, particularly those who are covered by an Award. The absence of this allows an employee to provide their own “record” of hours worked, and the employer then has nothing concrete to counter this with.
Therefore, whilst there is an argument that the record keeping requirements do not apply, you are encouraged to keep records of time worked and calculate Award entitlements to ensure your annualised salary does, at all times, remain higher than what the Award equivalent would be.
What should employers do?
A five-step approach is recommended:
1) Identify all employees who are covered by one of the Modern Awards affected by the changes (listed above).
2) Identify which of these employees are paid an annual salary.
3) Review the contractual arrangements for those employees, with a focus on ensuring there is a suitable off-set clause.
4) Seek advice as to whether changes to those contractual arrangements are required in response to the Award changes.
5) If you do not wish to apply the applicable Award annualised salary provision, seek advice on how to comply with the specific obligations from 1 March.
6) Consider how you can implement a system to record hours worked by employees to whom the provisions apply.
The FWC has decided not to publish a draft determination for the Health Professionals and Support Services Award at this stage and as such it is unlikely that Annualised Wage Arrangements will be introduced to this award in March 2020. HRA Cloud will continue to provide updates regarding the FWC position in relation to the Health Professionals and Support Services Award.
Contracts of employment made available on the HRA Cloud platform remain unchanged. No changes to contracts of employment are needed. HR Assured is however in the process of finalising a written agreement an employer and employee can enter into if an annualised salary will be paid in accordance with an Award provision. This will be available by COB Friday 6 March 2020.
If you require further information, please contact HR Assured.
Nick Tindley is the Head of Workplace Relations and Advisory at HR Assured and Law Partner at our parent company, FCB Group. Nick has over fifteen years’ experience in providing industrial relations and employment law advice, with particular expertise in the retail industry.