MODERN AWARD CHANGES
The Fair Work Commission (FWC) has made changes to annualised salary provisions of modern awards following its recent 4- yearly modern award review process.
The changes affect 19 modern awards that currently include annualised salary clauses and 3 awards that have not previously included such clauses but will now have new clauses inserted.
The changes apply only to full time employees and take effect from 1 March 2020.
WHAT IS THE RISK?
The underpayment of employees’ wages has been topical in Australia, recently with high-profile cases being colloquially referred to in the media as constituting ‘wage theft’.
With the FWC modern award changes, employers face the risk of underpaying workers if they fail to implement and comply with the changes to annualised salary arrangements.
In addition to the adverse publicity and other employment risks, civil penalty provisions apply for non-compliance with a modern award which is a breach of the Fair Work Act 2009 (Cth).
Annualised Salary Arrangements
An ‘annualised salary agreement’ provides for employer flexibility and can reduce the periodic payroll administrative burden created by having to calculate an employee’s hours worked in each pay period in accordance with the relevant modern award provisions.
Such an agreement allows an employer to calculate an annualised salary based on an employee’s expected annual hours of work and to pay the employee equal instalments of this amount in each pay period.
Annualised salary agreements are often included in an employment contract that provides for an annualised salary that covers all wage entitlements ordinarily due under the relevant award. The new changes are not intended to and do not invalidate, or prevent use of, these types of arrangements.
There remains an existing obligation to ensure employees covered by a modern award are not paid less than the award entitlement.
MODERN Awards Impacted
The modern awards impacted by the changes have slightly different requirements depending on the award type – described as either category 1, 2 or 3.
Category 1: Modern awards which cover employees with relatively stable hours. Here an Employee Agreement is not required for the introduction of annualised salary arrangements. The wage must be calculated by factoring in assumptions of overtime and penalty rates and setting of an ‘outer limit’ of hours which make up the annualised wage.
Category 2: Modern awards which cover employees working highly variable hours or hours that attract penalty rates. An Employee agreement is required for the introduction of annualised salary arrangements. The wage is calculated the same as category 1, by factoring in assumptions of overtime and penalty rates and setting of an ‘outer limit’ of hours which make up the annualised wage.
Category 3: Modern awards which specify that an annualised salary amount be not less than a specified percentage above the minimum weekly wage of the relevant award. An Employee Agreement is required for the introduction of annualised salary arrangements. The wage is calculated by reference to the specified percentage.
A list of awards impacted and each award’s category (1, 2 or 3) appears below.
The new changes introduce additional obligations on employers creating checks and balances aimed at ensuring employees are not underpaid resulting from use of, and reliance on, annualised salary arrangements.
Key changes include notification to employees, payment for hours worked in excess of identified ‘outer limits’, annual wages reconciliations and record keeping.
Notification to employees: The employer must notify the employee in writing of the annualised salary payable and the method used to calculate it, the award provisions factored in to the calculation, the outer limit or ordinary hours and hours attracting a penalty rate that are required to be worked without additional entitlement.
Payment for hours worked above outer limits: The employer must pay the employee any ordinary hours or hours attracting a penalty rate actually worked by an employee in addition to the annualised salary in each pay period.
Annual wages reconciliations: The employer is required to do a reconciliation of what the employee was actually paid in annualised salary against what the employee was entitled to under the relevant modern award. A reconciliation is required to be conducted on an annual basis or upon termination of employment. Any identified shortfall discrepancy is required to be paid to the employee within 14 days.
Record Keeping: The employee must keep detailed and accurate records of the working hours of employees under annualised salary arrangements. This includes shift start and finish times, hours worked including ordinary, overtime and hours attracting penalty rates and includes unpaid rest breaks.
LIST OF IMPACTED MODERN AWARDS
The modern awards previously containing annualised salary clauses that will have revised clauses inserted from 1 March 2020 are as follows:
- Banking, Finance and Insurance Award 2010 (Category 1)
- Broadcasting, Recorded Entertainment and Cinemas Award 2010 (Category 2)
- Clerks—Private Sector Award 2010 (Category 1)
- Contract Call Centres Award 2010 (Category 1)
- Hospitality Industry (General) Award 2010 (Category 3)
- Hydrocarbons Industry (Upstream) Award 2010 (Category 1)
- Legal Services Award 2010 (Category 1)
- Local Government Industry Award 2010 (Category 2)
- Manufacturing and Associated Industries and Occupations Award 2010 (Category 2)
- Marine Towage Award 2010 (Category 3)
- Mining Industry Award 2010 (Category 1)
- Oil Refining and Manufacturing Award 2010 (Category 1 for clerical employees and Category 2 – for non-clerical employees)
- Pharmacy Industry Award 2010 (Category 2)
- Rail Industry Award 2010 (Category 2)
- Restaurant Industry Award 2010 (Category 3)
- Salt Industry Award 2010 (Category 1)
- Telecommunications Services Award 2010 (Category 1)
- Water Industry Award 2010 (Category 1)
- Wool Storage, Sampling and Testing Award 2010 (Category 1)
Additionally, the modern awards not previously containing annualised salary clauses that will have new annualised salary clauses inserted effective from 1 March 2020 are as follows:
- Horticulture Award 2010 (Category 2)
- Health Professionals Award 2010 (Category 2)
- Pastoral Award 2010 (Category 2)
Action – How to Comply
Employers will need to take action to ensure that processes are in place to enable the business or other organisation to comply with the modern award annualised salary changes by the effective date of 1 March 2020.
Specifically employers should do the following to ensure compliance with the changes:
- Identify what impacted modern awards may apply and which category applies to the award.
- Determine which employees are effected and what current annualised salary arrangements are in place and whether any changes are needed.
- Notify employees, make additional payment for extra hours worked not accounted for in the annualised salary arrangement in each pay period, conduct annual wage reconciliations, and ensure record keeping requirements are met.
For more information or assistance in understanding or complying with these important employment law changes, contact one of Kott Gunning’s Workplace Relations & Risk specialists:
Mike Morgan – Lawyer/Consultant
(08) 9321 3755
The information published on this website is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.