[co-author: James Sanders]*

Employers with operations in Australia with full-time salaried employees covered by a modern award may be affected by the Fair Work Commission’s recent decision to make changes to annualised salary clauses.

Background

The Fair Work Commission made a decision to introduce “model” annualised wage arrangement clauses into 21 modern awards that will take effect on March 1, 2020. These clauses impose additional requirements on employers to notify their full-time salaried employees, keep records, and reconcile wages.

A full list of modern awards that will be affected by these changes are available on the Fair Work Commission’s website.

What Is in the Model Clause?

As of March 1, 2020, employers must:

1. Advise their full-time salaried employees in writing and keep records of:
   1. how their individual salaries have been calculated, including specifications of each separate component of their salaries and any overtime or penalty assumptions used in the calculations;
   2. the outer-limit number of ordinary hours and overtime hours that would attract award penalty rates or overtime pay, whichever the case may be, which the employee may be required to work (subject to any maximum outer limit fixed in the relevant modern award);
2. Make additional payments to employees if they work hours in excess of the outer limits specified in the annualised salary arrangements or the relevant modern award;
3. Keep a record of employees’ start times, end times, and unpaid breaks; and
4. Conduct a wage reconciliation (i) every 12 months from commencement of the employee’s employment or (ii) upon termination of the employee’s employment. Where a shortfall exists, the shortfall must be back paid to the employee within 14 days.

To facilitate the reconciliation, the record of hours completed by an employee for each pay period or roster cycle must be signed by the employee or acknowledged as correct in writing.

Employers with award-covered full-time salaried employees, may want to update their employment contracts to ensure that the contents are consistent and compliant with the relevant model annualised wage arrangement clause.

A breach of a modern award clause can lead to substantial civil penalties for an employer, including for directors of the employer (AU$63,000 per breach for companies and AU$12,600 per breach for individuals).

Potential Benefits for Employers

The new modern award model annualised wage arrangement clauses allow employers to take advantage of two benefits:

1. Under the relevant clause, and for the purposes of the National Employment Standards contained in the Fair Work Act 2009 (Cth), the “base rate of pay” is defined as the employee’s minimum wage rate contained in the relevant award, exclusive of any incentive-based payments, bonuses, loadings, monetary allowances, overtime, and penalties.
2. Most modern awards allow employers (and employees) to terminate the annualised wage arrangement by giving 12 months’ written notice.

Next Steps for Employers

In accordance with the above, employers may want to:

1. Identify relevant modern awards that apply to their businesses;
2. Ensure that any annualised salary arrangements are consistent with the annualised wage arrangement clause in the identified modern awards;
3. Update all relevant employment contracts to ensure compliance with the annualised wage arrangement clause in the identified modern awards; and
4. Identify and comply with any back pay obligations in the relevant modern awards.

* MST Lawyers