Changes to Annualised Wage arrangements in Modern Awards
The Fair Work Commission (FWC) has issued a decision to insert new annualised wage arrangements for 22 modern awards from 1 March 2020 imposing new obligations on employers. The new annualised wage arrangements are only applicable to full time employees.
It is important however to note that the new annualised wage provisions in the modern awards do not compel an employer to enter into an annualised wage arrangement. The new annualised wage arrangements are only applicable to full time employees.
If you currently pay your employees an annualised wage and your employees are covered by any of the affected modern awards, you must comply with the new arrangements.
To find out if your business will be impacted click here to find the list of modern awards that will be affected.
What are the new obligations?
Under the new annualised wage arrangements, employers will be required to:
- Notify employees of the method used in calculating the annualised wage.
- Confirm the outer limits of number of ordinary hours and overtime hours that have been calculated to be included in the annualised wage.
- Undertake annual reconciliation from the commencement of the annualised wage arrangement or upon termination of employment. Each 12 months, calculate the amount of remuneration that would have been payable to the employee under the applicable award and compare it to the amount of annualised wage actually paid to the employee. If the employee has been paid less than the minimum entitlements under the applicable award the employer must pay for the shortfall within 14 days.
- Keep a record of the starting and finishing times of work and any unpaid breaks taken by each employee. The record must be signed by the employee or acknowledged as correct in writing (including by electronic means), each pay period or roster cycle.
In addition to the above, some modern awards will differ based on the following:
- Written agreement between the employer and employee for the annualised wage to be paid;
- Either the employer or employee may terminate the annualised wage agreement by giving 12 months’ notice; and/or
- A minimum percentage uplift of the minimum weekly wage rate.
It is important to note that the introduction of new annualised wage arrangements under a modern award do not place any obligation on an employer to enter into an annualised wage arrangement.
Employment contracts with “set off” clause
Despite the introduction of the new annualised wage provisions, employers who currently pay an annual salary and have employment contracts in place that include an appropriate “set off” clause to cover all entitlements can continue to utilise such arrangements. If an employment contract does not include a “set off” clause, no matter how high the employee’s annual salary the employer could be at risk of employees being entitled to additional pay/entitlements.
Employers next steps
Employers need to take steps to identify if any of the affected modern awards apply to their employees and determine which remuneration methods it wishes to continue with or adopt (annual wage arrangement under a modern award, or annual salary with “set off” clause in employment contract, or minimum award wage and entitlement each pay period).
No matter what remuneration method an employer proceeds with, it is critical to ensure that it is recorded in writing.
The information contained within this article is for general advice only, to obtain specific advice for your business contact us on 1300 116 400 or email [email protected]