The Fair Work Commission has varied[1] a number of modern awards with existing annualised wage provisions and introduced new annualised wage provisions into other awards. These new annualised wage award provisions will take effect from 1 March 2020 and are significantly different to the existing award terms. The new annualised wage award terms are very prescriptive and include a number of administrative requirements that many employers will find impractical and onerous. We encourage employers to review their annualised wage arrangements now and consider whether it is practical to implement the new regime and, if not, what other compliant options exist.

What is an annualised wage?

Annualised wage (or salary) arrangements are permitted under a number of awards and allow an employer to pay a fixed annual wage in satisfaction of various award entitlements, including minimum weekly wages, allowances, overtime, penalty rates and annual leave loading. Most of the existing annualised wage award provisions are relatively simple to apply and allow employers a reasonable degree of flexibility and convenience when managing remuneration arrangements.

What is changing?

The new award annualised wage provisions are in generally consistent terms but there are important differences and employers should carefully review the arrangements for each award covered employee in their business to ensure compliance. Key changes to the award annualised wage provisions include:

  • An employer may pay a full-time employee an annualised wage in satisfaction of minimum weekly wages, allowances, overtime penalty rates, weekend and other penalty rates and annual leave loading;

  • The employer must advise the employee in writing and keep a record of:

o the annualised wage to be paid;

o the provisions of the award to be satisfied by the annualised wage;

o the method by which the annualised wage is calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation;

o the outer limit number of ordinary hours which would attract payment of penalty rates under the award in a pay period or roster cycle; and

o the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle;

  • If an employee works hours in excess of either of the outer limits specified above during a pay period or roster cycle, those hours are not covered by the annualised wage and must be paid separately in accordance with the applicable award provisions. That is, these amounts must be paid on top of the annualised wage;

  • The annualised wage must not be less than the minimum amounts payable under the award for work performed over the year for which the annualised wage is paid;

  • Each 12 months following the commencement of the annualised wage arrangement or upon termination of the employment, the employer must calculate remuneration payable under the award and compare it to the annualised wage actually paid to the employee. Any shortfall must be rectified by the employer within 14 days;

  • The employer must keep a record of the start and finish times, including any unpaid breaks taken, for each employee who is party to an annualised wage arrangement. This record must be signed by the employee or acknowledged in writing as being correct during each pay period or roster cycle. An electronic acknowledgement will be acceptable; and

  • The model award clause to be inserted into certain awards where employees typically work highly variable hours requires that the employee and employer agree to the annualised wage arrangement (ie, employee consent is required) and allows either party to terminate the arrangement by giving the other 12 months' written notice.

What should employers do to prepare for these changes?

We expect that many employers will find the new annualised wage arrangements difficult to implement and time-consuming to manage. Given this, employers should review the annualised wage provisions that will apply to your business from 1 March 2020 and start preparing for the introduction of the new arrangements or alternatively, seek advice about other compliant options.