If you pay annual salaries, the law has just changed

With close to 100% of Australian businesses paying annualised salaries under 22 modern awards, it’s very likely you’ve been impacted by the changes implemented by the Fair Work Commission on 1 March 2020.

Prior to this date, you were obligated to pay salaried employees under all Awards at least the same gross amount they would have received under their respective awards (including overtime, allowances and travel).

Most entitlements would already be accounted for, but since salaried employees do not often track their hours, it hasn’t been possible for employers to accurately calculate entitlements.

The recent changes mean employers need to start tracking hours of all full-time employee hours, with non-compliance potentially resulting in fines and even jail time for company directors.

Affected awards

The following awards are where employers are able to pay an annual salary without the employee’s agreement.

  • 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
  • Wool Storage, Sampling and Testing Award 2010

The following awards will now require the employee to agree with the employer to pay an annual salary.

  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry 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
  • Horticulture Award
  • Pastoral Award 2010

The following awards are where the new requirements will be introduced at a later date (a date after 1 March 2020, which is yet to be determined).

  • Health Professionals Award 2010
  • Marine Towage Award 2010
  • Restaurant Industry Award 2010
  • Hospitality Industry (General) Award 2010
What records do you need?

Employers need to record the annual wage arrangement in writing and give their employees a copy. This has to include:

  • the annual wage that will be paid
  • which award entitlements are included in the annual wage
  • how the annual wage has been calculated, including any assumptions used in the calculation
  • the maximum (or ‘outer limit’) number of penalty hours and overtime hours the employee can work in a pay period or roster cycle without extra payment.

The employer must also record the employee’s:

  • starting and finishing times
  • unpaid breaks taken.

Employees have to acknowledge the record of hours they’ve worked is correct by signing in writing or electronically at the end of every pay period or roster cycle. This record is used for annual reconciliations.

What steps should you take?

Here are six steps to ensure you’re meeting your obligations:

  1. Track hours – Ensure all full-time employees who fall under one of the relevant awards track and submit all hours worked each week, either in writing or electronically.
  2. Outline award inclusions – Have in place written documentation recording which provisions of the award are intended to be included within the annual salary.
  3. Timely payments – Where an employee works hours which exceed those ‘outer limits’ in a pay period/roster cycle, pay the employee for those hours worked (at the relevant overtime or penalty rate) within the relevant pay cycle.
  4. Annual report – Run a report at least once per year comparing employees’ salaries with the employees’ full entitlements under the Award for all the hours they have worked in the relevant period.
  5. Termination report – Run reports each time an employee is terminated to ensure they have been paid the minimum amount under the Award for the hours they have worked since 1 March 2020, or since the last annual report
  6. Swift correction – Immediately top up an employee’s salary for any underpayments identified in comparison with their Modern Award entitlements.

Visit FairWork to find out more