What is an annualised wage arrangement?

Some modern awards contain provisions for an annualised wage arrangement. An annualised wage arrangement is a mechanism by which an employer pays an annualised wage to an award employee that is equal or superior to the entitlements required by the modern award. This allows for payment of a higher fixed salary that takes into account the week to week wage variations that can arise where employees have entitlements to such benefits as allowances, penalties and overtime in addition to a base wage. The inclusion of annualised wage arrangement clauses in modern awards is intended to provide a more certain way for employers to set a fixed remuneration for employees, even where employees’ entitlements under the award may fluctuate.

What entitlements can be satisfied by an annualised wage arrangement?

An annualised wage, paid in accordance with an annualised wage arrangement under a modern award, can satisfy the following award entitlements:

  • Minimum weekly wages
  • Allowances
  • Overtime penalty rates
  • Weekend and other penalty rates
  • Annual leave loading

What has changed?

These annualised wage arrangement clauses have recently been reviewed by the Fair Work Commission (FWC). To ensure that employees paid under annualised wage arrangements are no worse off than they would be under the normally applicable provisions of the modern award, the FWC has adopted prescriptive new requirements for employers. These requirements include enhanced record keeping (discussed further below) and the need to perform a yearly reconciliation to ensure that the employee’s annualised wage has not resulted in any underpayment.

Which awards contain an annualised wage arrangement clause?

The 22 modern awards which shall shortly contain a new or updated clause allowing employers to pay employees through an annualised wage arrangement are as follows:

  • Banking, Finance and Insurance Award 2010
  • Broadcasting and Recorded Entertainment Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Horticulture Award 2010
  • Hospitality Industry (General) Award 2010
  • Health Professionals and Support Services Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award
  • 2010
  • Marine Towage Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010
  • Pastoral Award 2010
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Restaurant Industry Award 2010
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

When does this come into effect?

The updated annualised wage arrangement obligations will come into effect in 21 of the above 22 modern awards on 1 March 2020. The date of operation for the annualised wage arrangement clause in the Health Professionals and Support Services Award 2010 is yet to be decided.

What records must be kept?

Where an employee is paid an annualised wage in accordance with an annualised wage arrangement under a modern award, employers must keep records of the following:

  • The annual wage payable
  • Which provisions of the award will be satisfied by the payment of the annualised wage
  • The outer limit number of ordinary hours which would ordinarily require payment of a penalty rate under the award which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage
  • The outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage
  • The employee’s starting and finishing times of work and any unpaid breaks, which must be signed off by the employee

Some of the 22 awards include an additional requirement that the employer keep a record of how they calculated the annualised wage, which must specify each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation.

Do I have to implement an annualised wage arrangement?

The FWC has made it clear that annualised wage agreements are not the only means of using an annualised salary to “buy out” various identified award entitlements. Given the higher administrative burden of utilising an annualised wage arrangement, if you are an employer who is seeking to pay an annualised salary encompassing all award entitlements, you may instead choose to use a set off clause in your employment contracts.

A contractual set off operates where an employer has agreed to pay an employee an annualised salary to compensate for (or ‘set off’) various award entitlements. However, a set off clause may not protect an employer where the set off clause has been improperly drafted, as it may not clearly compensate an employee for relevant award entitlements. In these circumstances, an employer can be liable for underpayment of award entitlements such as overtime, allowances and penalties, even where a higher salary has already been paid to the employee.

Employers are reminded that it is not enough to pay above award rates without making it clear that any above award payments are intended to compensate for award entitlements such as allowances, penalties and overtime. Employers who wish to pay an annualised salary to award employees must either:

  • have a properly drafted set-off clause in their employment contracts specifically stating that the salary will compensate for all award entitlements; or
  • use the annualised wage arrangement pursuant to the applicable modern award.

We recommend that employers seek specific advice on their employment contracts and payment structures to minimise the risks of underpayment claims.

Nicola Martin is a Lawyer at Justitia Lawyers. To view her profile click here.