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Do you rely on annualised salary arrangements, off-set clauses or over award payments to pay your employees?

Victoria Quayle ||

Employers’ should be aware of the upcoming changes to the annualised salary arrangements which will take effect from the 1 March 2020 and affect multiple industries. This piece covers the key changes, off-set clauses and common law contracts.

Annualised salaries

An annualised salary arrangement (set up in accordance with the relevant award requirements) allows an employer to pay an employee an annual salary, in satisfaction of minimum weekly wages, allowances, overtime penalty rates, weekend and other penalty rates and annual leave loading.

As part of the 4 yearly modern award review process, the Fair Work Commission will be making some key changes to the standard “Annualised salaries” clause that appears in many commonly applied modern awards – including but not limited to the Banking, Finance and Insurance Award, the Clerks – Private Sector Award, the Contract Call Centres Award, the Legal Services Award, the Manufacturing and Associated Industries & Occupations AwardPharmacy Industry Award, and the Health Professionals Award.

The changes are due to come in on 1 March 2020 – and the key ones include:

  • Where an annualised salary or wage is entered into, an employer must advise the employee in writing and keep of record of:
    • the annualised wage;
    • the provisions of the award that will be satisfied by payment of the annualised wage;
    • the method by which the annualised wage has been calculated;
    • the outer limit number of ordinary hours which would attract the payment of a penalty rate under the award; and,
    • 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.
  • Where an employee works any hours in excess of the outer limits specified above during any pay period or roster cycle, such hours will not be covered by the annualised wage and must be separately paid for in accordance with the applicable provisions of the award.
  • The annualised wage must not be less than the amount the employee would have received under the relevant award for the work performed over the year for which the wage is paid.
  • Every 12 months the employer must, from the commencement of the annualised age arrangement, or upon the termination of employment of the employee, calculate the amount of remuneration that would have been payable to the employee under the relevant award, over the relevant period, and compare it to the amount of the annualised wage actually paid to the employee. Any shortfall must be paid by the employer within 14 days.
  • The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement. The record must be signed by the employee or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.
  • For some of the impacted awards – entering an annualised salary arrangement can continue to be at the sole discretion of the employer, for others however, an annualised salary arrangement can only be implemented if both the employer and employee agree to enter into one, and in such circumstances, the arrangement can be terminated by either party upon the giving of 12 months written notice.

Off-set clauses and common law contracts

An alternative to an annualised salary or wage arrangement – some employers opt to utilise a common law contract and off-set clause. That is, an employer and employee agree to an arrangement whereby the employee is paid an all-inclusive salary that is higher than the base rate required by the relevant award, and the employer and employee expressly agree that the over award component of the employee’s salary will be treated as the employer having met its obligations to make any other payments that may arise under any relevant award (for example, overtime, penalty rates, loadings – including leave loading and allowances), and all this information is documented in detail, in a common law contract.

It is important to note that the “annualised salaries” clause in modern awards does not invalidate a common law contract off-set clause / arrangement, in other words, the use of a correctly drafted off-set clause in a common law contract remains a viable option (in lieu of an annualised salary) for employers to utilise in order to avoid the complexities of hourly rates and associated payments that arise under an award.

Is just paying over award enough?

In short – no! Simply paying over the award, but not in line with the annualised salary award requirements, or alternatively in conjunction with a carefully drafted offset clause in a common law employment contract, offers no protection from an underpayment claim!

What do you do now?

If you have any concerns in relation to how you currently structure your payments to employees generally, or how such current arrangements will be impacted by the changes that come in on 1 March 2020, please do not hesitate to contact a member of Coleman Greig’s Employment Law team:


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