By Erin McLeod, Law Graduate, and Barney Adams, Associate, of Macpherson Kelley.
A Full Bench of the Fair Work Commission (FWC) recently decided upon wording for two ‘model’ clauses that will regulate the way employers implement annualised salary arrangements.
The change is primarily intended to address a lack of uniformity among the range of clauses currently found in the 19 modern awards that deal with the subject.
Annualised salaries can be beneficial for both employees and employers. For employers, they confer business advantages in terms of managing cash flow, creating predictability in labour costs and reducing administrative complexity.
For the employee, they receive the benefit of income security and predictability of earnings which can assist with budgeting and obtaining finance.
However, the situation is not so simple where an employee is covered by an award or other industrial instrument. In those cases, any salary agreed upon must equal or exceed the total amount to which an employee would be entitled if they were paid on an hourly basis in the manner prescribed by the award or other instrument. Crucially, this calculation must also account for overtime, penalty rates and allowances – all of which can be difficult to anticipate or calculate in advance, especially where working hours are varied.
Annualised salary clauses in awards impose further requirements upon employers, for example, to explicitly notify employees of the award entitlements that their salary is intended to cover.
The model clauses
The FWC has endorsed two ‘model’ clauses that will replace the range of clauses which are currently in place:
- The first clause will be used in awards that already contain annualised wage provisions and do not require employees’ agreement. This clause will be implemented in industries and occupations involving generally stable hours such as mining, banking, clerical and telecommunications.
- The second clause will be used in awards covering employees who work highly variable hours or a significant number of ordinary hours that would otherwise enliven penalty rates. For example, the rail, oil refining, broadcasting, local government and pharmacy industries.
Obligations for employers
The clauses impose a number of obligations on employers, including:
- a requirement that the employer carry out a reconciliation at the end of each year comparing and remedying any discrepancies in the employee’s entitlements under the award with the actual payment received by the employee; and
- a requirement that the employer reduce to writing and keep a record of details which may include:
- the annualised wage that is payable to an employee;
- which provisions of the award will be satisfied by the payment of the annualised wage;
- the way the annualised wage is calculated;
- the outer limit of ordinary hours which would attract the payment of a penalty rate under the modern award; and
- the outer limit of overtime and penalty-rate hours that are paid for by the annualised wage.
- The awards that will be affected include the 19 modern awards that currently contain annualised salary provisions, plus the Horticulture Award 2010 and Pastoral Award 2010, which will soon include annualised salary provisions for the first time.
- Employers who use annualised salary arrangements should review their employment agreements and prepare to make any variations necessary to ensure compliance with the new regime.
This article was originally published on the Macpherson Kelley website and has been reproduced with permission.