Changes to annualised salary arrangements: from 1 March 2020

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Naomi Fink Special Counsel Linkedin

Is your industry subject to a Modern Award?  If yes, does the Award include an “annualised salary” provision?  If yes, then from 1 March 2020, you must comply with new notification and record-keeping requirements.

What is an annualised salary?

Employers who are part of the banking, finance and insurance industries (including providers of financial services), are subject to the Banking, Finance and Insurance Award 2020 (the Award), which includes an annualised salary clause.

As you would be aware, the Award includes provisions which set out the minimum remuneration to be paid to an employee, in relation to salary, allowances, overtime and penalty rates and leave loading obligations. The annualised salary clause allows an employer to structure the employee’s salary as an annual salary, instead of complying with all or some of the above individual employee entitlements.

The employer is required to ensure that the amount of the annual salary takes into account the above entitlements, and also, that the employee is not disadvantaged by accepting the annual salary in lieu of receiving one or more of the individual entitlements.

What are the new notification and recordkeeping requirements?

Previously, in order to rely on the annualised salary clause, the employer was required to demonstrate that the total annual salary paid to the employee was equal to or greater than the amount of benefits due to the employee under the Award, in relation to minimum weekly wages, allowances, overtime and annual leave loading (the entitlements).

From 1 March 2020, the employer is required to notify the employee in writing, and keep a record of:

  • the annual salary payable;
  • the entitlements which are satisfied by payment of the annual salary;
  • the method of calculation of the annual salary, including details of each separate component of the annual salary and any assumptions regarding overtime or penalty entitlements used in the calculation;
  • the outer limit of ordinary hours worked by the employee in a pay period that would attract the payment of a penalty rate under the Award; and
  • the outer limit of overtime hours that an employee may be required to work without being entitled to payment of any amount in addition to the annual salary (eg overtime).

If an employee works hours which are in excess of the outer limits described above, then those additional hours are not covered by the annual salary and must be paid separately, as per the provisions of the Award.

No disadvantage to employees

The annual salary arrangement must not disadvantage employees in any of the following ways:

  • the amount of the annual salary must be not be less than the amount the employee would have received under the Award (taking into account the entitlements) for work performed over the year to which the salary applies;
  • every 12 months from the commencement of the annual salary arrangement, or upon termination of employment, the employer must calculate the amount of remuneration that would have been payable under the Award over the relevant period, and compare it to the amount of the annual salary actually paid. Any shortfall must be paid to the employee within 14 days; and
  • the employer must keep a record of the start and finish times of work and unpaid breaks for each annual salary employee, for the purposes of undertaking the above comparison. The record must be signed by the employee, or acknowledged as correct, each pay period.

What should employers do before 1 March 2020?

• check whether your business is subject to a Modern Award, and if yes, whether it includes an annualised salary provision and has been recently amended by the Fair Work Commission;
• check whether any of your employees receive an annual salary;
• ensure that you have implemented procedures which record the employees’ starting and finishing times, and that the records are signed by the employees;
• review your employment contracts to ensure that they are not inconsistent with the Modern Award;
• ensure that you implement a procedure to conduct the annual review and comparison of annual salary amounts to Award entitlements, and make up any shortfall.

How can Holley Nethercote Lawyers help?

We can assist you to comply with your new obligations, by amending your standard employment agreements and/or letters of engagement, and assisting with the development of compliance policies and procedures.

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Author: Naomi Fink (Special Counsel)