4 yearly review of modern awards – Annualised Wage Arrangements [2019] FWCFB 8583

As part of its four yearly review of modern awards, the Fair Work Commission has determined that most employers who pay annualised salaries will, from 1 March 2020, need to ensure these arrangements are compliant with the terms of new model ‘annualised wage arrangement’ clauses.

The new model annualised wage clauses will replace annualised salary clauses which are currently included in 19 modern awards. They will also be added into three other modern awards which did not previously have an annualised salary clause.

The model clauses expand employer obligations with regards to employee notification and record keeping as well as wage reconciliation with respect to full time employees who are paid a modern award annualised salary. Employers will need to inform employees of the ‘outer limit’ of penalty rate hours and overtime hours the employee may work in a pay period before being entitled to further payment under the award. These changes are aimed at ensuring that employees are not disadvantaged by annualised arrangements.

Awards affected by this decision

There are four model clauses; however, only two are ready to take effect from 1 March 2020. They will be added into the following categories of awards:

Model clause 1

Model clause 1 will be inserted into awards that cover employees who work relatively stable hours, that is:

  • Banking, Finance and Insurance Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010 (clerical employees only)
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010.

Model clause 2

Model clause 2 will apply to the Hospitality Award 2010 (managerial employees only). Model clause 2 has not been finalised and will not become effective on 1 March 2020.

Model clause 3

Model clause 3 will be inserted into awards which cover employees who work highly variable hours and/or significant ordinary hours of work that attract a penalty rate:

  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Oil Refining and Manufacturing Award 2010 (non-clerical employees)
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Horticulture Award
  • Pastoral Award 2010
  • Health Professionals Award 2010 (supervisory and managerial staff).

Model clause 4

Model clause 4 applies to the three awards that require the annualised wage to be a minimum percentage amount above the relevant base award weekly wage rate specified in the award. These awards are:

  • Restaurant Industry Award 2010
  • Marine Towage Award 2010
  • Hospitality Industry (General) Award 2010 (non-managerial staff).

The Commission has deferred the insertion of model clause 4 into these awards, as well as deferring the insertion of model clause 3 in the Health Professionals and Support Services Award 2010 for supervisory and managerial staff, as it further considers these changes. A new operative date for these changes has not yet been determined.

How does this change affect employers?

The model clauses impose significant obligations on employers. There are some variations between the model clauses, specifically:

  • Model clauses 1 and 2 do not require employee agreement to the arrangement. Under model clauses 3 and 4 however, the employee’s written consent to a proposed annualised salary arrangement is required before the wage arrangement is implemented. Either party may terminate the agreement by providing 12 months’ written notice.
  • Under model clauses 1 and 3, the employer may calculate the annualised wage by reference to assumptions made by the employer about how many hours of overtime the employee is likely to work and/or which penalty rates are likely to apply. The employer must then specify the ‘outer limits’ of the employee’s ordinary hours and overtime hours that the annualised wage will satisfy.
  • Under model clauses 2 and 4, the annualised wage must comply with:
    • the minimum percentage set out in the applicable award, and
    • the minimum wage prescribed by the applicable award for that employee’s classification.

Notification and record keeping

Employers must notify the employee in writing and keep a record of:

  • The annualised wage which is payable,
  • The particular provisions of the relevant modern award which will be satisfied by the payment of the annualised wage (the award entitlements which can be satisfied by an annualised wage are specified in the model clauses),
  • The method by which the annualised wage has been calculated. This may include a separate component of the annualised wage and any overtime or penalty assumptions used in the calculation.
  • The ‘outer limit’ number of ordinary hours which would attract the payment of a penalty rate under the award, and
  • 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 additional amount.

If an employee works any hours in excess of the ‘outer limit’ amounts specified in the annualised wage arrangement in a pay period or roster cycle, those hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of the modern award.

The employer is also required to keep records of the start and finish times of work, and any unpaid breaks taken, for each employee and have employees sign, or acknowledge as accurate, that record in each pay cycle or roster cycle.

Wage reconciliation

The annualised wage must be no less than the amount the employee would receive under the applicable modern award had an annualised wage arrangement not applied.

Every 12 months from the date the annualised wage arrangement commenced, an employer must calculate the amount of remuneration payable under the award and compare it to the amount the employee received under the annualised wage arrangement. If a shortfall is identified, this must be rectified within 14 days.

A reconciliation must also be completed on termination of the employment (howsoever caused).

Preparing for the changes

Prior to 1 March 2020, employers should:

  • Review existing contractual annualised salary arrangements to ensure compliance with the new requirements and agree to vary the terms of the arrangement where they do not comply
  • Review and update employment contract templates to ensure compliance with the new requirements
  • Ensure comprehensive record keeping practices are in place which record breaks, start and finish times and hours performed outside ‘outer limits’, and have the record acknowledged by the employee each pay or roster cycle
  • Review annualised wages payable for award-covered salaried employees to ensure that employees are paid all entitlements owed to them, had their salary been calculated under the provisions of the relevant modern award.