In 2019, as part of its four-yearly review of modern awards, the FWC proposed the inclusion of 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) and this clause was incorporated into these Awards in December 2019. The purpose of this change was to introduce several notifications, recordkeeping and wage reconciliation obligations on employers who pay annualised salaries to their award-covered employees.
With effect from 1 March 2020, the FWC will introduce three new standard ‘annualised wage arrangement’ clauses which will replace the existing annualised salary clauses in the modern awards already containing such a clause and also be included in a number of modern awards which have not previously had an annualised salary clause.
The modern awards which will be impacted by the decisions are listed in the three Award Lists below, and include some modern awards with the most widespread coverage, including the Clerks – Private Sector Award 2010, the Manufacturing and Associated Industries and Occupations Award 2010 and the Banking, Finance and Insurance Industry Award 2010. The impacted Awards will be revised and released prior to the effective date (the FWC has not yet confirmed the timing).
It is common practice for employers to pay an “all-inclusive” annualised salary which is intended to compensate or ‘set-off’ modern award monetary entitlements in relation to the performance of work, base wages, overtime rates, penalty rates and loadings. The alternative is for employers to pay wages and other monetary entitlements separately as and when they become due. However, for employers with employees receiving an annualised salary, who are also covered by a modern award containing an annualised salary clause, the key issue will be whether the new modern award clauses will impact on their annualised salary arrangements.
What this means for employers
There are significant new obligations for employers under the three new modern award annualised wage terms, with the following three differences between the standard clauses:
The new obligations which are similar across the three new standard ‘annualised wage arrangement’ clauses are the requirements for employers to:
The risks and how to minimise them
Where a modern award applies, and where the modern award includes an annualised wage clause, a concern for employers is whether their annualised salary arrangements comply with the terms of the modern award.
Where an employer fails to comply with the terms of a modern award annualised wage clause, and particularly where an annualised salary is not sufficient to compensate for hours actually worked by an employee, employers will be exposed to the risk of underpayment claims and potential penalties for breaches of the modern award. There have been may cases in the media over the past 12 months resulting from just this issue, exposing the business to considerable penalties from the FWC.
To minimise the risks associated with annualised salary arrangements, employers should consider the following:
Taking the time to conduct a review on whether your business is equipped to undertake these requirements is crucial to a successful transition and compliance.
Modern award list
The three new annualised wage clauses will be added to or replace the existing annualised salary clauses in a number of modern awards. Download the list of modern awards to check whether how changes impact your business.
You can also obtain further details from the Fair Work Ombudsman website at https://www.fairwork.gov.au/contact-us/offices/victoria