Annualised salary clauses will come into effect in Australia next year: what do employers need to know?

In April 2019, Australia’s Fair Work Commission (FWC) completed its modern awards review and decided to introduce new annualised salary clauses for several modern awards, including the Clerks - Private Sector Award and the Banking, Finance and Insurance Award. The new annualised salary clauses will affect 19 modern awards that already contain annualised salary clauses and three that do not, and will come into effect on 1 March 2020.

The new clauses will impact employers who pay annualised salaries to their employees: to help your and your payroll department adjust, read our guide to the new rules.

What are annualised salary arrangements?

Some modern awards allow employers to pay their employees an annualised rate of pay which is inclusive of monetary entitlements related to performance (base wages, overtime, penalties, etc.). These entitlements would otherwise have been calculated and paid separately, when due.

Many employees in Australia are paid an annualised salary as part of their modern award: in these situations, the clauses that the FCA have introduced will impose new obligations on employers.

What are the new obligations for employers?

The clauses coming into effect on 1 March 2020 broadly involve new notification, record-keeping and wage reconciliation obligations for employers paying modern awards in an annualised arrangement to their employees.

The key obligations are:

Employee notifications: Employers will be required to notify employees in writing about the details of their annualised salary. The notification should include how much salary is payable to the employee, how that salary has been calculated, and how the salary satisfies its modern award clauses.

As part of the notification, employers must also make their employees aware of the limits to their ordinary hours that they might be required to work during a given pay period without being entitled to additional wages (beyond their annualised salary). Hours worked in excess of those limits would trigger a penalty rate or overtime pay.

Overtime pay: Employees who work in excess of the hourly limits set out in their annualised salary arrangement (in a given pay period) must be paid wages in addition to their salary, either as overtime or penalty rates. Be aware: this payment may affect the mechanism in the annualised salary arrangement that offsets additional pay entitlements.

Annual reconciliation: Every 12 months, or when the employment is terminated, employers must complete a reconciliation of their employees’ annualised salary arrangements. The reconciliation is a comparison of the annual salary paid to an employee with the amount that would have been paid to them under their modern award for the same period of work. If a shortfall is found, employees must be paid that amount within 14 days.

Employers are also required to log their annualised salary employees’ start and finish times, and unpaid breaks.

What should employers do now?

The annualised salary clauses will be in effect from 1 March 2020 so employers should use that time to ensure their payroll has adjusted to the new obligations. That will involve examining the details of the annualised salary arrangements paid to employees via a modern award, and taking into account the effects of the clauses on contracts entered into prior to 1 March 2020.

Employers should also ensure that they have the infrastructure in place to comply with the new record-keeping and overtime requirements: in other words, logging start and finish times and break periods, and managing remuneration for overtime pay.

For more information on the Australian payroll and tax landscape, browse activpayroll’s Australia Global Insight Guide.

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