As per a four-year review cycle, the Fair Work Commission (‘FWC’) handed down a decision to make key changes to annualised salary arrangements in early 2019. These changes, set to take effect on 1 March 2020, impact the manner in which salary clauses are included in employee contracts.
Specifically, they will affect employers who set-off their wage rates against modern award entitlements. ‘Setting off’ refers to employers who set a based annual salary, but include entitlements, like overtime and leave, under an ‘all-inclusive’ clause set at their relevant fields award standards.
Therefore, it is important as an employer to be aware of these changes to avoid the potential of penalities for underpaying employees. Below we outline how what these changes are.
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The categories of awards affected
Firstly, how these changes affect salary arrangements is dependant on what category the FWC has placed the award governing the job. These categories are:
Category 1
- 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
Category 2
- 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
Category 3
- Marine Towage Award 2010
- Restaurant Industry Award 2010
- Hospitality Industry (General) Award 2010
Employers must now specify assumptions when calculating entitlements
Under the changes, when employers calculate annual wages they must specify certain assumptions regarding entitlements. These assumptions must be explicitly stated within the salary arrangement clauses of the employee’s contract.
So, for jobs falling within category 1 and 2 awards, this means specifying any overtime or penalty rates that are factored into the calculation of the salary. These may include the expectations regarding overtime without penalty compensation. Likewise, the employer must then provide outer limits to these expectations. At the point these outer limits are reached, the relevant award (to the job) will then take over in dictating compensation.
For category 3 awards, the annualised wage must appear within the contract as a minimum percentage in addition to the minimum weekly wage set by the award. Likewise, the individual award will dictate the percentage. As with category 1 and 2 awards, outer limits must also be specified within the contract.
Employees may need to agree to the new terms
The employer may implement an annualised salary arrangement for category 1 jobs, without the employee’s agreement. However, for category 2 and 3 jobs, employee approval is required prior to implementation. Hence, as an employer ensure that you make your employees aware of the changes if they are not already.
Employers need to keep records of their employees hours
Employers must now keep consistent records of their employees start and finish times, as well as when any unpaid breaks are taken. Furthermore, the employee must acknowledge these records as accurate at every pay cycle.
Any discrepancies must be reconciled
Every twelve months, employers must now recalculate the compensation provided to their employees. If it appears that compensation is not in line with the award scheme – for example, overtime hours appear to be underpaid – these issues must be reconciled within 14 days. Consequently, any failure to reconcile will result in fines for the employer.
I’m an employer, what do I need to do?
The most important thing for employers who will be affected by these changes is to make sure that your salary arrangements meet the requirements. These changes come into effect on 1 March 2020!
Hence, contacting a lawyer to review these will help ensure that there are no discrepancies and help avoid any fines. Likewise, consider how you currently track your employees hours, and whether any new systems need to be implemented.
As an employee, be aware of whether you may be affected. Your employer themselves may not realise the changes that need to be made.
Final thoughts
Ultimately, these changes will help ensure that employees are compensated accurately for any overtime hours. However, these changes also require greater diligence from employers. Particularly, when recording these hours. We recommend contacting a lawyer if you believe these changes may affect you.
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