28 August 2019
Published by Natasha Jones
As part of the four yearly review of modern awards, the Fair Work Commission (FWC) has recently handed down a decision which will impact employers paying annualised salaries to employees covered by a modern award with an annualised salary clause . The FWC decision finalises the terms of three new standard ‘annualised wage arrangement’ clauses, which will replace the existing annualised salary clauses in the 19 modern awards already containing an annualised salary clause. The new terms will also be inserted into three modern awards which have not previously had an annualised salary clause .
The modern awards which will be impacted by the decisions are listed in the three categories below this article, and include some modern awards with the most widespread coverage, including the Clerks – Private Sector Award 2010, the Manufacturing and Associated Industries and Occupations Award 2010 and the Banking, Finance and Insurance Industry Award 2010.
When do the changes take effect?
In light of the significant new obligations on employers, the FWC has determined that the new annualised wage arrangement clauses will not take effect until 1 March 2020.
Background - annualised salary arrangements
It is common practice for employers to pay an “all-inclusive” annualised rate of pay which is intended to compensate or ‘set-off’ modern award monetary entitlements in relation to the performance of work, such base wages, overtime rates, penalty rates and loadings. The alternative is for employers to pay wages and other monetary entitlements separately as and when they fall due.
There is no requirement for a modern award to have an annualised salary term for an employer to lawfully pay an annualised salary to an award-covered employee. In practice, most employers rely upon an annualised salary arrangement under a contract of employment which identifies the entitlements which are offset by the “all inclusive” annualised salary.
However, for employers with employees receiving an annualised salary, who are also covered by a modern award containing an annualised salary clause, the key issue will be whether the new modern award annualised wage clauses will impact on their annualised salary arrangements.
New obligations for employers under modern award annualised wage terms
There are significant new obligations for employers under the three new modern award annualised wage terms.
There are some notable differences between the three new standard clauses in respect of:
The new obligations which are similar across the three new standard ‘annualised wage arrangement’ clauses are the requirements for employers to:
How should employers prepare?
Prior to 1 March 2020, employers who pay annualised salaries to employees whom the annualised wage clause will apply should:
What are the risks if we get it wrong?
In the circumstance where a modern award applies, and particularly where the modern award includes an annualised wage clause, a key concern for employers is whether their annualised salary arrangement complies with the terms of the modern award.
Where an employer fails to comply with the terms of a modern award annualised wage clause, and particularly where an annualised salary is not sufficient to compensate for hours actually worked by an employee, employers will be exposed to the risk of underpayment claims and potential penalties for breaches of the modern award. George Calombaris’ Made Group is the most notable recent example of an employer to fall foul of the annualised salary requirements under the modern awards. The Made Group rectified underpayments to employees totally nearly $8 million, which arose from annualised salary arrangements which did not adequately compensate employees for their actual hours worked and which contravened the terms of the annualised salary clause in the applicable modern award.
How to minimise the risk of getting it wrong?
To minimise the risks associated with annualised salary arrangements, employers should:
Impacted modern awards
The three new annualised wage clauses will be added to or replace the existing annualised salary clauses in the following categories of modern awards.
Category 1 includes modern awards which cover employees who work relatively stable hours. The FWC determined that the annualised salary term for this category will not require an employee’s agreement to the introduction of an annualised salary arrangement. This category includes:
Category 2 includes modern awards which cover employees who work highly variable hours and/or significant ordinary hours of work which attract a penalty rate. The FWC determined that the annualised salary term for Category 2 modern awards will require employers and employees to agree on the application of an annualised salary arrangement. This category includes:
Category 3 includes modern awards which currently provide that the annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award. The FWC determined that the annualised salary term for Category 3 modern awards will require employers and employees to agree on the application of an annualised salary arrangement. The clause will only apply in respect to non-managerial staff. This category includes:
Author: Natasha Jones
 4 yearly review of modern awards - Annualised Wage Arrangements (AM2016/13)  FWCFB 4368
 Pastoral Industry Award 2010, Horticulture Award 2010 and Health Professionals Award 2010
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Published by Natasha Jones