The Fair Work Commission’s review of modern awards has resulted in amendments to 23 awards that will impact on many employers. The new annualised wage clauses take effect from 1 March 2020, and potentially impose significant obligations on employers. You might need to take appropriate action before 1 March; please read our blog to see if you are affected, and the steps you should take.

In this blog, we continue our review (which we commenced in September 2019: ) of the implications for employers of the changes to modern awards resulting from the Fair Work Commission’s four yearly review. The review was substantially completed in late 2019, although hearings regarding some Awards are continuing through January 2020.

Below, we consider the onerous new arrangements that employers must implement by 1 March 2020 for employees on annualised wage arrangements under a number of Awards.

What are the requirements, and who is affected?

Broadly, in order to pay an annualised wage using the Award arrangements for full-time roles covered by the relevant awards, employers will have to:

  • advise each employee in writing, and keep a record of:
    • the annualised wage payable, and which provisions of the award are satisfied by that wage;
    • the method by which the wage has been calculated, including each separate component (base salary, allowances, loadings) and any overtime or penalty assumptions used in the calculation;
    • the ‘outer limit’ number of ordinary hours which would attract the payment of a penalty rate and ‘outer limit’ number of overtime hours the employee may be required to work in a pay period or roster cycle without being entitled to any additional payment;
  • pay employees separately and in accordance with the Award for any hours worked in excess of the outer limits specified under the annualised wage arrangement in any pay cycle or roster period;
  • conduct a comparison every 12 months of the amount paid to the employee under the annualised wage arrangement against what the employee would have earned under the award in the same period, and rectify any shortfall within 14 days;
  • keep records of the start, finish and unpaid break time of each employee on an annualised wage arrangement, and have the employee sign or acknowledge as correct in writing each pay cycle or roster period.

There are additional technical requirements – these differ across the affected awards.

The awards affected by these changes are:

  • 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
  • Pastoral Award 2010
  • Health Professionals and Support Services Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Oil Refining and Manufacturing Award 2010 (non-clerical employees)
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Restaurant Industry Award 2010
  • Hospitality Industry (General) Award 2010
  • Marine Towage Award 2010
  • Wool Storage, Sampling and Testing Award 2010
  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry Award 2010
  • Horticulture Award 2010

Employers may also choose – instead of these specific award annualised wage arrangements – to use simpler set-off clauses in employment contracts. The Commission has made it clear that this is still permissible. In our view, it seems likely that the Commission is drawing a distinction between these two types of arrangements at least in part because many employers give their award-covered staff brief letters of offer that simply refer to the award – in which case the award clauses regarding annualised arrangements are very relevant. However, they may be less relevant to employers using full written contracts with set-off clauses.

Whichever option an employer chooses, record-keeping obligations under the Act and Fair Work Regulations will require them to record either the number of overtime hours worked by an employee each day or the start and finish times for overtime worked.

What should employers do?

Employers who have full-time employees covered by the awards listed above who are paid by way of an explicit ‘annualised salary’ or ‘annualised wage’ arrangement should consider whether to maintain these arrangements, and if so then whether to link them to the award clauses.

If the decision is made to keep using annualised wage clauses under (and relying on) the award clauses, employers should, before 1 March 2020:

  • take the necessary steps to comply with the obligations described in the relevant award, including reviewing each existing arrangement to confirm that the employee is better off on the wage arrangement based on the hours worked;
  • issue an updated contract or letter of contract variation (if required) and/or letter confirming the annualised wage arrangements to the employee with the new content required by the award; and
  • ensure appropriate arrangements are implemented in their payroll systems to enable the employer to comply with the record keeping, employee payslip authorisation and 12 monthly review requirements.

If the decision is made to rely on a contractual set-off rather than the award annualised wage clauses, then – again, before 1 March 2020 – it is likely to be necessary to enter into contract variations with each relevant employee clarifying that the annualised salary/wage is being paid to offset award entitlements, but not in accordance with an award annualised wage clause. This is particularly important where an employer has pre-existing contracts which specify that annualised wages/salaries are being paid pursuant to an award (such as the Clerks Award). We recognise that, to many employees, the distinctions between those two scenarios will be meaningless unless it is very clearly explained in terms that reflect the employer’s industry, enterprise and practice – so care needs to be taken.

While demanding and onerous, this situation creates a good opportunity to:

  • ensure existing and template contractual set-off provisions are effectively drafted having regard to the most recent Court authorities;
  • review each existing arrangement to confirm that the employee is financially better off than under basic award entitlements; and
  • decide whether to adopt the new award clause structure for those clauses.

Please contact a member of our Employment, Workplace Relations and Safety Team if you would like our assistance in complying with the new annualised wage provisions, or in updating your set-off clauses in employment contracts.

Jacquie Seemann | Partner | NSW | +61 2 9020 5757 | [email protected]

Bridget Nunn | Special Counsel | SA | +61 8 8236 1129 | [email protected]

Lauren Townsend | Special Counsel | VIC | +61 3 8080 3773 | [email protected]