Modern Award Annualised Salaries – Are you ready for 1 March 2020?

By Lucy Shanahan, partner

From 1 March 2020, changed annualised salary provisions in 22 modern awards will apply.  The new provisions impose greater obligations on employers who rely on award based annualised salaries to satisfy award entitlements including record keeping, auditing and employee consent. It is important that you take steps now to ensure you are compliant with the provisions that will apply from 1 March 2020.

Who do the new provisions apply to?

The new provisions will apply to any employer covered by the modern awards listed below. The new provisions only apply to full time employees, and only apply to employers who rely on an annualised salary arrangement under the terms of an award to satisfy award conditions.  The model clauses are not intended to invalidate or regulate terms of common law contracts which ‘buy out’ or otherwise compensate for award entitlements.

The Full Bench of the Fair Work Commission has introduced four different model clauses which apply to different modern awards. Model Clauses 1 and 3 apply most broadly as set out below.

Model Clause 1 Model Clause 3
Banking, Finance and Insurance Award 2010 Broadcasting and Recorded Entertainment Award 2010
Clerks – Private Sector Award 2010 Health Professionals Award 2010 (supervisory and managerial staff)
Contract Call Centres Award 2010 Horticulture Award 2010
Hydrocarbons Industry (Upstream) Award 2010 Local Government Industry Award 2010
Legal Services Award 2010 Manufacturing and Associated Industries and Occupations Award 2010
Mining Industry Award 2010 Oil Refining and Manufacturing Award 2010 (non-clerical employees)
Oil Refining and Manufacturing Award 2010 (clerical employees only) Pastoral Award 2010
Salt Industry Award 2010 Pharmacy Industry Award 2010
Telecommunications Services Award 2010 Rail Industry Award 2010
Water Industry Award 2010
Wool Storage, Sampling and Testing Award 2010

Model Clause 2 applies to the Hospitality Industry (General) Award 2010 in respect of employees classified as managerial staff and Model Clause 4 will apply to the Restaurant Industry Award 2010, Marine Towage Award 2010 and Hospitality Industry (General) Award 2010 in respect of non-managerial staff.  In this Insight we focus on Model Clauses 1 and 3.

What are the new provisions?

Model Clauses 1 and 3 require an employer to keep specific records and to undertake an audit either every 12 months or on termination of an employee’s employment.

The audit requires employers to calculate the amount of remuneration that would have been paid to the employee under the modern award and compare that amount to the annualised salary paid.  Any deficiency must be addressed within 14 days.

Under Model Clause 1, an employee must be advised of the information set out below in writing. A record of the information must also be kept.

For those employers who are covered by Model Clause 3, the information set out below must be contained in a written agreement between the employer and the employee. A copy of the written agreement must be retained as a time and wages record.

Record Keeping Obligations Further Details
Annualised salary paid Annual salary paid to satisfy award entitlements
Provisions of the award satisfied by the annual salary
  • minimum weekly wages
  • allowances
  • overtime penalty rates
  • weekend and other penalty rates
  • annual loading
Starting and finishing time of work and any unpaid breaks taken The record of starting and finishing times and unpaid breaks taken must be signed by the employee or acknowledged as correct in writing by the employee each pay period or roster cycle.  This can be done electronically
Method used to calculate the annualised salary including:
  • specification of each separate component of the annualised salary
  • any overtime or penalty assumptions used in the calculation
  • the outer limit of ordinary hours which would attract the payment of a penalty rate under the relevant award
  • 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 amount in excess of the annualised wage

Any hours worked in excess of the outer limits are not covered by the annualised salary and are paid for in accordance with the award.

In addition, under Model Clause 3, an annualised salary arrangement can be terminated by:

  • a mutual written agreement between the parties at any time, or
  • either party providing written notice to the other 12 months before the agreement ceases to operate.

What do you need to do?

1 March 2020 is fast approaching. You need to identify whether you are required to comply with the terms of any of the Model Clauses, and then take steps to ensure that you are compliant.  This will involve preparing relevant communication to employees and may involve making changes to your record keeping and payroll procedures.

Remember that you need to work out first whether or not you need to make any changes. Don’t panic! We can assist you to ascertain if the changes apply to you and help you to prepare for these changes.

Lucy Shanahan
+61 2 9169 8405
[email protected]