Changes to Annualised Salaries under Modern Awards

From 1 March 2020, the Fair Work Commission has introduced new requirements for the payment of Annualised Salaries under Modern Awards. These changes will increase the obligations on all employers who pay their employees an annualised salary under a relevant Modern Award.

These changes impact on any additional hours an employee works, and how they are remunerated for those additional hours. Many employers pay their employees a single Annualised Salary which pays an employee above the award amount to compensate the employee for having to work additional hours from time to time.

There are 4 key changes which employers will need to implement.

Notification – Employers must notify employees in writing and keep a record of the annualised salary payable. This notice must detail:

  • the amount that will be paid as the Annualised Salary;
  • the specific payments under the relevant Modern Award that will be satisfied by the Annualised Salary (for example, allowances, overtime penalty rates and annual leave loading);
  • the method used to calculate the Annualised Salary, including details of any assumptions about overtime or penalty rates; and
  • the “outer limit” of ordinary hours which would ordinarily attract penalty rates under the relevant Modern Award and the overtime hours that an employee may be required to work without being entitled to any payment in excess of their Annualised Salary.

Under some Awards, for example the Hospitality Industry (General) Award, employers must enter an agreement with the employee to this effect. These agreements can be terminated by an employee or employer with 12 months’ notice.

Additional pay – Any hours that employees work in excess of the “outer limit” set out in the notice or agreement must be paid separately to the Annualised Salary as overtime and / or with relevant penalty rates attached.

Reconciliation – Employers must calculate the amount of pay that would have been paid to the employee under the Modern Award every 12 months (or on termination of employment) and compare this amount to the Annualised Salary actually paid to the employee. Any underpayment must be corrected and paid to the employee within 14 days.

Record keeping – Employers must keep a record of the hours worked by employees, including start and finish times, and any unpaid breaks taken by the employee. The employee must approve this record, in writing, each pay period or roster cycle.

These changes mean that if you pay any employees an Annualised Salary under a Modern Award you must make sure that by 1 March 2020:

  • You have the correct agreement in place or have provided the required notice to employees, and that this notice or agreement includes all the necessary information
  • You have processes in place to collect detailed records of employee’s work hours and that this is approved by employees in writing each pay period or roster cycle

Please contact us if you would like any advice or assistance with preparing for these changes.

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