Did you know that you could get stung with an underpayment claim if the annualised salary provisions in your employment contracts are not specific enough? 

For administrative ease, many employers choose to pay employees an “annualised salary” or an “all-inclusive rate”. This is an arrangement in which an employee is paid a fixed salary in satisfaction of all entitlements they may be entitled to under a modern award. Examples of common entitlements that may be satisfied by an annualised salary include allowances, overtime rates, penalties and annual leave loading. 

The recent decision in the case of Simone Jade Stewart v Next Residential Pty Ltd [2016] WAIRC 00756 makes it clear that an employment contract must clearly identify the applicable award and set out exactly which provisions are to be satisfied by the payment of the annualised salary. In that case, the employee was given the green light by the court to pursue a claim for AU$29,000 in unpaid overtime and meal breaks despite being paid an annualised salary.

This is because the annualised salary clause in the employee’s contract attempted to include “any” award entitlements that may be payable under “an” award, which created uncertainty as to which award covered the employee and which award provisions were satisfied by her annualised salary. 

The court held that the award in question, namely the Clerks Private Sector Award 2010, only permits certain entitlements to be included as part of an annualised salary. The broadly drafted clause in the employment contract therefore attempted to include award entitlements which were incapable of inclusion such as meal breaks. 

The requirement for specificity is to remove any doubt about what the annualised payment is for. Employees should be able to compare their annual salary to award entitlements so that a no-disadvantage test can be properly considered and applied. To minimise exposure to potential claims, employers should ensure that annualised salary provisions in employment contracts are clearly drafted and contain the specificity required to withstand scrutiny.