During our recent webinar regarding the ‘Changes to Annualised Salaries in Modern Awards‘ that came into effect on 1 March, we received a wide range of questions.
Despite taking a little longer than we originally anticipated to process, we have prepared the below answers (grouped in similar topics), along with preparing a file for download and reference at any time.
Want to access an answer on a specific topic? Simply click one of the links below;
- Award Coverage
- Introduction of annualised wage changes to modern awards
- Who is affected by the annualised wage changes?
- Calculating overtime
- Unauthorised overtime
- Time off in lieu (“TOIL”) arrangements
- Outer limits
- Annual Reconciliation
- HR and Payroll Software
1. Award coverage
What is the definition of an “Award Free Employee”?
Determining whether an employee is ‘award-free’ can be a difficult task and is not necessarily an exact science.
Some occupations are generally award-free (for example, lawyers and accountants). And generally, awards do not apply to the highest level of management. There are exceptions to these rules though, so each instance must be explored on a case-by-case basis. It is always a more conservative approach to treat employees as award-covered rather than award-free if there is any doubt.
How do you determine if someone falls under an award?
Determining if an employee is covered by an award involves answering the following questions:
- Does the employer operate in an industry covered by an industry award (for example, the restaurant industry, or the real estate industry)? If yes, then it is likely that most of its employees will be covered by the relevant industry award. If not, its employees may be award-free, or they may be covered by an occupational award.
- Is the worker employed in an occupation covered by an occupational award (for example, Clerks – Private Sector Award 2010)? If yes, they will be covered by the relevant occupational award. If not, they may be award-free.
Importantly, an employee’s title and/or the amount they are paid will not automatically determine award coverage.
If you require assistance in determining award coverage, please contact us to talk through your business requirements in more detail.
2. Introduction of annualised wage changes to modern awards
What confirmation do you have that these changes will definitely happen?
The annualised wage amendments were introduced into 18 modern awards on 1 March 2020. For example, please see the new Clerks-Private Sector Award 2010 ‘Annualised wage arrangements’ clause here.
How long do we have to become compliant with these changes?
The new annualised wage arrangements come into effect in 18 modern awards in the first full pay period after 1 March 2020. Accordingly, we recommend that any business that wishes to pay an annual salary under the annualised wage provisions in the affected awards implements all necessary changes as soon as possible.
3. Who is affected by the annualised wage changes?
Is the retail award being changed, and where can we find a list of all awards being changed?
No, the General Retail Industry Award 2010 is not affected by the new annualised wage changes. Please see the Fair Work Ombudsman’s page on the new annualised wage arrangements for a list of all amended awards.
Can it be assumed that other modern awards not covered will eventually be included?
At this stage, there is no indication that the Fair Work Commission intends to introduce these changes to other awards.
When will the new provisions be introduced into the Restaurant Award?
At this stage, the Fair Work Commission has not indicated when the new changes will be introduced into the Restaurant Industry Award 2010, the Hospitality Industry (General) Award 2010, the Marine Towage Award 2010 or the Health Professionals and Support Services Award 2010.
Please subscribe to the Employment Innovations newsletter to stay up to date with any announcements.
Does this apply if the only people paid on salary are the directors?
If the only people in the business being paid a full-time annualised salary are the directors, it is unlikely these changes will impact the business as it is likely the directors are award-free due to their high level of seniority.
What if employees are under a workplace agreement? Does the new law apply?
If workers are currently employed in accordance with an enterprise agreement, these new changes will not apply.
If an employee is on a salary and an IFA agreement, is the document outlining their salary justification still necessary?
We consider an employer can use an IFA as a means to pay an award covered employee an annualised salary (rather than engaging with the annualised wage provisions in an award), but keep in mind IFA’s must deem the employee better off overall than if the IFA did not apply and can be terminated by either party with notice.
In light of these requirements, we recommend seeking professional advice before implementing an IFA.
How do you see these annualised wage requirements versus Individual Flexibility Agreements (IFAs)?
See the above answer.
If you require any assistance, please contact us to talk through your business requirements in more detail.
Because the new changes are only for full-time employees, does that mean you cannot pay a part-time employee an annual salary?
No. Employers can still pay their award-covered part-time employees a salary. They do not need to comply with the new provisions, but they must continue to ensure that the salary paid is sufficient to compensate the employee for all hours worked in each pay period in accordance with the award. Further, pursuant to the Fair Work Regulations, if a penalty rate or loading is payable for overtime, the employer must keep a record of the overtime hours worked on any given day or when the employee commenced and ceased working those overtime hours.
Why does it not apply to part-time staff if they’re also paid a salary?
The Fair Work Commission decided only to introduce these changes for full-time employees. It is possible similar requirements will be introduced for part-time employees in the future. Please subscribe to the Employment Innovations newsletter to stay up to date with any announcements.
Do these requirements extend to small business?
Is it a requirement to keep records, annualised salary calculations etc for employees who are business owners but paid as employees through an entity? (Typically don’t work ‘standard’ hours)
If the business owners are engaged and paid as full-time employees of the business, and are conducting duties that would deem them award covered (remembering these changes only apply to 18 modern awards), then yes, the new annualised wage provisions would apply. If the business owners are engaged as employees but are performing high-level management duties, they may be award-free and therefore, exempt from these changes.
Do the “Key Requirements” you mention need to be provided to employees already on a salary before March 1st?
Yes – if they are currently being paid an annualised salary in reliance on the annualised salary provisions of an award and you wish to continue to do so. We recommend including an Annualised Wage Arrangement document as an appendix to their existing contract.
If you require a template, please contact us to talk through your business requirements in more detail.
If a part-time employee is paid above award rates, can an annualised review be conducted, so the employer doesn’t have to pay leave loading, for example?
We would recommend including a ‘set-off’ clause in this employee’s contract so that they agree that all amounts which arise under the applicable award will be set off against the salary paid. Of course, it is vital that the salary paid is, in fact, sufficient to compensate this employee for all hours worked in each pay period (including any additional amounts such as overtime, penalties, allowances and annual leave loading). A good way to ensure compliance is to keep a record of hours worked, and to conduct a reconciliation at least annually, keeping in mind employee’s classifications can change from time to time and base rates of pay are updated each year on 1 July.
However, remember that you will have breached the award if the employee is underpaid at any point in the year, even if you put matters right at the end of the year. It is only through an Annualised Wage Arrangement in an award (not available to part-time employees), that you can lawfully “underpay” and then put matters right through the reconciliation.
Are directors of a company personally liable for non-compliance with any of the requirements you discussed today?
Yes. Section 45 of the Fair Work Act 2009 (Cth) prohibits the contravention of a modern award provision. This section is a ‘civil remedy provision’ which means its contravention can mean a penalty of up to $63,000 for a corporation and $12,600 for an individual knowingly involved in the breach.
How does the timesheet record-keeping work in times where overtime is not approved but worked & therefore not approved through payroll?
Employment Innovations’ payroll system allows for timesheet data to be captured but for this not automatically affect the rate the employee is paid.
If you require any further information about our payroll systems, please contact us to talk through your business requirements in more detail.
Can you confirm that under the Fair Work Act 2009, ALL staff require time records to be kept for every pay period? Currently, all our staff are paid ‘standard hours’ unless an exception timesheet is completed outlining additional hours they were required to work in the pay period.
Employer’s record-keeping obligations are set out in the Fair Work Regulations 2009 and apply to all employers. Specifically, regulation 3.34 states that, if a penalty or loading is payable for hours, worked by an employee (including overtime penalties), employers must keep a record of the number of overtime/penalty rate hours worked each day or when they start and finish these hours.
This will apply to salaried employees under modern awards who work overtime hours or other hours attracting penalty rates. The fact that an employer pays overtime/penalty rates through a salary does not change this obligation.
Will timesheets now be required in instances where an award-covered employee is receiving 40% above award wages with an existing common law contract that includes an off-set clause outlining what’s included?
As above – there will not be an obligation to get employees to sign a weekly time-sheet, but employers must keep records of all penalty rate/overtime hours worked.
It really doesn’t seem like there is any benefit in using annualised salaries anymore. If you overcompensate, you don’t get it back; and if you under compensate you have to make it up (and risk non-compliance). Seems easier to just pay on timesheets
This is ultimately a business decision, but we would agree that paying employees by the hour may be safer than paying a salary, remembering that employers have always been obligated to pay award covered employees everything they are entitled to in accordance with the award.
The advantage of the new annualised wage provisions is that if they are followed properly then no underpayment should ever arise as you will have a record of all hours worked and an obligation to put right any shortfalls each year.
Does the employee need to acknowledge or sign the timesheets each pay period if the employee is the only one that has access to add or edit their time records?
If they are being paid an annualised wage under the new award provisions, then we would still recommend the employee acknowledge the timesheet as correct.
For the clause where the records must be signed or acknowledged as correct by employees if they lodge their timesheets electronically, is that enough?
We would recommend having a function which allows the employee to acknowledge they are submitting a true and correct record before the timesheet is submitted.
What happens if you are paying above the award?
It is important that, even if you are paying a salary above the award minimums, the business has an understanding of what the employee would be entitled to be paid under the award with reference to the employee’s work pattern, classification and relevant rates of pay (including penalties, overtime, allowances and annual leave loading).
Sometimes paying an arbitrary amount which is above the award minimums will still not be sufficient. If the business is confident the salary paid is sufficient to compensate the employee for all hours worked in each pay period they may wish to simply off-set all award entitlements in an employment contract rather than engage with the new award provisions.
In regard to staff signing off on their hours – is it possible to dictate that hours can only be performed between say 9am and 5pm with a 1 hr break and the employee then can provide a “standing acknowledgement” of this.
The requirement under the new award provisions is for records to be signed or acknowledged as correct each pay period or roster cycle. We consider this involves the employee taking some form of action each time they approve the record (rather than having this set up as an automatic approval).
Regarding the record-keeping, how would this look in a practical setting? Would you require each employee to physically/digitally sign each month, or would the employee be able to consent to an “automatic” recurring acknowledgement of the start-end times that were worked? I ask because that’s again operational overhead that takes time.
See the answer above.
You talk about keeping records to track overtime and have it signed for by the employee. Is it ok to not track the ordinary hours due to flexible starting & ceasing arrangements and lack of timekeeping system and assume everyone is working their 38 hrs before claiming overtime on a timesheet?
If the business elects to engage with the new award provisions to pay an annualised salary it is important to keep a record of employee’s start, finish and unpaid break times, or the business will be unaware of when the payment of additional amounts is triggered.
How do you capture working from home and working offsite?
It may be a little more difficult, but it is important that the business works with employees that are working from home or offsite to record their start, finish and break times. HR Software like Employment Hero allows employees to clock on / clock off via an app on their phone, even if they are working away from the office.
Can an employer pay a ‘bonus’ at the end of each year to ensure that the employee is paid enough, or would this be seen as an additional payment and not taken into consideration to the BOOT test.
Unless an employer pays an annual salary through reliance in the new award provision, it is important to remember that the employer must pay the employee for all hours worked in each pay period. Even if an annual lump sum payment is made to ensure the employee is paid enough on average across the course of a year if the employee’s salary is not sufficient in each pay period the business is still in breach of the award.
Do you have to have employees sign off hours each week if you pay monthly?
No. The obligation under the new annualised wage provisions is for employees to sign/acknowledge as correct, per pay period or roster cycle. If your award permits monthly pay periods, then employees would have to sign time records (or acknowledge they were accurate in writing) on a monthly basis.
5. Calculating overtime
How do we calculate hours for employees who travel overseas on occasions? Do we have to include the actual travelling time and how does this get calculated? Can time off in lieu be used for this?
This will depend on the terms of the award. Some awards have very specific provisions which deal with payment for travel time and nights spent away from home.
Many awards provide for time off in lieu (TOIL) to be provided instead of an employee being paid overtime, but they generally have strict rules around this (i.e. the arrangement needs to be agreed in writing with the employee, the TOIL is paid out if not taken in a specific time-frame).
If you require advice in relation to a particular award, please contact us to talk through your business requirements in more detail.
For hospitality, most full-time employees work a large number of penalty rates (Saturdays, Sundays, Public Holidays, after 7pm, after 12am, overtime etc). The calculation and tracking will be far more onerous than many of the other awards. Is this new legislation now making it so that the best thing to do by far, is to just have all staff paid “on the award”? Then they are being paid the exact amount each week, no calculations at the end of the year, no pay backs for shortfalls, no overpayments for miscalculating the hours upfront etc?
This is ultimately a business decision, but we would agree that paying employees by the hour is probably safer than paying a salary for the reasons you state. EI’s payroll solutions have the awards such as the Hospitality Industry (General) Award 2010 built into their system, meaning that the amount an employee is entitled to per hour can be automatically calculated based on the hours they worked (including penalty rates and overtime, etc). Please contact us to talk through your business requirements in more detail.
If we don’t pay an annualised salary i.e we pay salary + super + leave loading + overtime but our week is 40hr as ordinary as such – do we need to ensure that when calculating this salary that we are paying above the award rate to include payment for these extra 2hrs per week?
Yes – awards generally provide that overtime is payable on time worked over 38 hours per week. A standard 40 hour week is therefore likely to mean that an employee is entitled to two hours of overtime per week.
Confirming that the calculation for overtime is always after working a base of a 38 hour week (not 40 hour week)?
Generally, awards provide that overtime is payable on time worked over 38 hours per week, but there are also usually provisions which provide that overtime is payable in other instances (when over a certain number of hours are worked in a day, when an employee works outside of a certain span of hours (e.g. 6am to 6pm), working through breaks, etc).
If you require advice on a specific award, please contact us to talk through your business requirements in more detail.
If someone works 70 hours in one week when we are extremely busy but then only works say 24 hours a week when quiet, how do we stand there?
This will depend on the exact provisions of the award. Many awards allow for an average of ordinary hours.
Where an employee works a variable number of overtime hours then – unless you are confident that their salary will be sufficient to meet the award entitlements in each pay period – it would be safer to pay a salary in reliance on the annualised wage provisions in an award. This will allow the amount of overtime payable to be averaged over the year and/or for any “underpayment” to be made good in an annual reconciliation, without the award being breached.
Re: flexible work – I hire mums, we have an agreement that they need to do 38 hours a week, but they can do those hours when it suits them, so if they want to take a child to dance class etc they can do that then they will make the hours up.
As noted elsewhere, one of the criticisms with the award provisions is that they do not really envisage flexible work arrangements such as this.
Many awards provide for minimum slots of work that can be worked at one time (i.e. they prevent employees working an hour here and an hour there) and for overtime to be payable if the employee performs extra work after going home for the day.
If your business has working patterns that are not envisaged by the award it may be wise to seek legal advice about the possibility of implementing an enterprise agreement or individual flexibility agreement (IFA) to alter the operation of the award. Please contact us for more information.
Can you have different average overtime periods for different roles?
We assume you are asking about when setting the annual salary under an annualised wage arrangement, can you include a different amount of overtime in the calculation of the salary depending on the role. If so, the answer is “yes”. Employers can set the amount of overtime included in the salary at whatever amount they wish.
I read somewhere that an annual salary had to be a minimum of 25% above the award. Is that not the case?
The Restaurant Industry Award 2010, the Hospitality Industry Award 2010 and the Marine Towage Award 2010 all have provisions which stipulate that an annual salary paid in reliance on the annualised wage provisions in an award must be a certain percentage above the award minimum. This is 25% in the Restaurant and Hospitality Awards.
6. Unauthorised overtime
What if the employee is not authorised to do the overtime and work after working hours of their own initiative? Do you have to still pay them?
It would be highly advisable to implement an overtime policy which stipulates things such as: who must give permission for working overtime (e.g. only senior managers?); how permission is to be given (does it have to be in writing?); is there a limit on the number of overtime hours that can be worked without permission?
If an employee works additional hours without permission in breach of policy there would be a good argument that such hours would not be payable. It would be advisable to treat employees who work such hours in breach of the employer’s policy as a disciplinary matter (i.e. issuing warnings and ultimately dismissal). Otherwise, there will be an argument that the employer implicitly agreed to the overtime being worked.
If you require assistance with such a policy, please contact us to talk through your business requirements in more detail.
There are those people who looooove to work and don’t have families or hobbies. Their life is around work. What do you do if you have an employee like that that clocks a crazy amount of hours say 7am – 7pm every day?
The employee will either need to be paid for such hours or directed not to perform additional hours without the permission of the employer. There is no provision in any award for an employee to opt to perform overtime and not be paid for it.
What if people decide to work through their lunch or stay back late and it is not approved overtime (i.e. its the employees choice). Does this need to be compensated for?
Yes – as above.
If an employee falls under an award where they now have to clock hours, do we have to train/instruct them to log hours for example when they may have clocked off, gone home and had dinner? However, they perform work after dinner to check some emails, do some reading related to work etc?
Yes – it is likely that employees will need training as to what is working time and what needs to be recorded in their time records.
Most awards do not have provisions for employees doing casual bits of work here and there (i.e. logging on to check emails from home after the working day has finished). One of the criticisms of awards is that they do not support such flexible working arrangements.
If your business has working patterns that are not envisaged by the award it may be wise to seek legal advice about the possibility of implementing an enterprise agreement or individual flexibility agreement (IFA) to alter the operation of the award. Please contact us to talk through your business requirements in more detail.
7. Time off in lieu (“TOIL”) Arrangements
How do the new rules regarding annualised salaries impact TOIL arrangements?
There is nothing in the new rules that affects the ability for employees to be provided with TOIL arrangements as an alternative to being provided with payment for overtime worked.
It would, therefore, be perfectly possible (when relying on the annualised salary provisions in an award) to set a salary at a (lower) level, which envisaged that any overtime worked would be provided as TOIL, so long as the employer follows the provisions in the applicable award that apply to TOIL. Many awards have provisions which state that TOIL can only be provided where this is agreed in writing with the employee and where the TOIL is not taken within a set timeframe it has to be paid out.
So long as the employer follows the provisions regarding TOIL in the award, there should be no issue in providing for this alongside the award’s annualised salary provisions.
Similarly, TOIL can be used as an alternative to paid overtime when a contractual offset is used to pay an annual salary, so long as the employer abides by the award provisos that relate to TOIL.
If staff do over the outer limit of overtime can you allocate to TOIL rather than paying out?
Yes – so long as you follow the provisions dealing with TOIL in the applicable award. Many awards provide for TOIL to be provided only with agreement with the employee and for it to be paid out if it is not taken with a set period of time.
8. Outer Limits
Who regulates the “outer limit” of overtime/penalty rate hours, can you make it what you want, or is this set in the award? Is there a maximum number that can be set?
In the 18 modern awards that are changing on 1 March 2020, the employer is free to choose the outer limit of overtime/penalty rate hours. There is no maximum number that can be set.
When changes are introduced (at a later date) to the Restaurant Industry Award 2010, the Hospitality Industry (General) Award 2010 and the Marine Towage Award 2010, these are likely to have a prescribed range of outer limit hours.
Regardless of how the outer limit of hours are set, employers can only require employees to work “reasonable additional hours” above their ordinary hours of work.
Would an outer limit include public holiday work?
Yes – most awards provide that work on a public holiday is either classed as overtime, or that a penalty rate is paid, so public holiday work can be included in the outer limits.
Some awards provide that overtime is paid at two different rates e.g. first 3 hours 150% and then 200% thereafter. When paying overtime for hours worked above the outer limit what rate would you pay?
The awards do not go into detail on this, but we would suggest a sensible way would be to apply the number of overtime hours included in the outer limit as against the earliest period of overtime worked.
So, for example, if the outer limit of overtime hours was set at six hours per week, and the employee worked 3 hours of overtime on Monday, 3 hours of overtime on Tuesday and seven hours of overtime on Wednesday, we would suggest the six hours of outer limits overtime be applied against the overtime worked on Monday and Tuesday.
This would leave the seven hours of overtime worked on Wednesday to be paid during the relevant pay period. Assuming the award provides that: (a) each day’s overtime “stands alone”; and (b) overtime is paid at the rate of 150% for the first three hours or overtime and 200% thereafter; then the rate the seven hours of overtime should be paid would be 150% for the first three hours and 200% for the next four hours.
It might be possible to arrange matters differently to the above. The annual reconciliation will, of course, ensure that however matters are arranged, the employee will always be paid at least what they would have been paid, had they paid by the hour under the award.
In paying overtime outside of the outer limits, can it be paid at the minimum award rate, or does it need to be paid at the contract rate if you are paying above award?
The requirement under the award provisions is to pay at the award-minimum rate.
With outer limits can you incorporate annual events such as stock takes, conferences etc?
Yes – the award does not focus on the purpose of overtime or penalty rate hours worked, just the number of hours.
What if outer limits are set too high and employees are overpaid during the year?
Whether the outer limits are set high or low will not affect the amount an employee is paid overall, but it will have an impact on whether the employer has to make additional payments to the employee during the course of the year (if they are “low” and the employee works over the outer limits) or in the annual reconciliation (if they are “high” and the employee does not work over the outer limits, but still works additional hours so the initial salary is not sufficient).
What happens with employees who are ‘always on’… i.e. responding to emails whilst on holiday or at night? Do outer limits cover that?
Generally, an employee will be entitled to be paid for all work performed (e.g. responding to emails on holiday or at night). One of the challenges with the award provisions is that they do not really envisage flexible work arrangements such as this.
Such work would generally be considered overtime if it is performed outside of the employee’s ordinary hours, so would be relevant to the question of whether an employee has worked in excess of the number of overtime hours set as an outer limit.
If your business has working patterns that are not envisaged by the award it may be wise to seek legal advice about the possibility of implementing an enterprise agreement or individual flexibility agreement (IFA) to alter the operation of the award.
Please contact us to talk through your business requirements in more detail.
What if a staff member works outside the outer limits without permission of the business?
It is very important that employers have clear rules about when an employee can perform overtime. We would recommend an Overtime Policy is implemented which clearly states that permission is required before any overtime is worked. If an employee then worked overtime without permission there would be a good argument that it should not be payable.
If you require such a policy, please contact us to talk through your business requirements in more detail.
Are there issues with a high number of outer-limit hours? I have farmworkers who work a lot of hours when hay is being baled, for example.
There is no issue with setting a high number of outer limit hours, only that if employees work a significant amount of overtime (but still within the outer limits) there could be a significant shortfall to make up in the reconciliation (if the salary has been set at a relatively low level).
Would you have to specify the days overtime are worked, i.e. a weekday, Saturday or Sunday for outer limit or just a general number of overtime hours?
The requirement under the awards is just to specify the number of hours.
Do the top-up payments need to be done each pay period, or only when the reconciliation for the 12 month period occurs?
If an employee works over the outer limit of overtime/penalty rate hours set for that pay period or roster cycle, then payment needs to be made within that pay period. Employers cannot wait until the annual reconciliation.
9. Annual Reconciliation
What pay rate applies for overtime hours worked that are over the annual salary set but less than the outer limit of hours?
In the annual reconciliation, the task is to compare the amount the employee was actually paid during the year against what they would have been paid if paid by the hour according to the award minimum rates. Any shortfall is paid at the award minimum rates for overtime.
In Example 3 in your slides, I don’t understand why the 3 hours overtime needed to be paid as part of the annual reconciliation. I am wondering if the employee actually did 7 hours overtime that week and therefore the 3 hours is beyond the 4-hour outer limit. Was that your intention? If that’s not the answer, then I am not sure why the 3 hours was payable.
In our example, the annual salary has been set to cover an average of two hours of overtime per week. In reality, the employee performed over an average of two hours a week (i.e. over the year as a whole she performed a total of three extra hours of overtime over the two-hour weekly average). More specifically, in one week she worked one hour over the two-hour average (i.e. three hours of overtime in total that week), and in one week she worked two hours over the two-hour average (i.e. four hours of overtime in total in that week).
Given the annual salary was set to only cover an average of two hours of overtime per week, there is a shortfall of three overtime hours which will need to be made good in the reconciliation.
The outer limit was not relevant in this example as the employee never worked over the 4-hour-per-week outer limit of overtime hours.
Would you tax as a lump sum in it’s an annual reconciliation?
Payments made through the annual reconciliation should be taxed like any other wages.
If there is a big shortfall on the annual reconciliation would the tax be an annualised calculation like an annual leave payout?
See the answer above.
Do you have to provide a copy of the reconciliation to the employee?
There is no requirement to do so under the new award provisions.
So to avoid having to do the reconciliation it’s easier to just write no outer limit and just calculate the pay each week?
If you wished to avoid having to perform a reconciliation the best way would be to pay the employee hourly, accordingly to the hours they work.
If the outer limit of overtime/penalty rate hours was set to correspond to exactly the amount of salary, then it should follow that there would never be any shortfall to make up as part of the reconciliation. i.e. if the salary is calculated on an employee working three hours of overtime per fortnight, and the outer limit of overtime is also set as three hours of overtime per fortnight, it should follow that: (a) any hours worked in excess of three hours of overtime in a fortnight are paid in the relevant pay period; (b) the salary paid should be sufficient to meet the hours worked (assuming there are no extra allowances, penalty rates, annual leave loading to pay, etc).
Does the pay reconciliation have to occur monthly or annually?
The reconciliation must occur: annually, on the anniversary of the employee entering into the annualised wage arrangement; upon the termination of employment; and upon the termination of the annualised wage arrangement.
What date do we complete the 12-month reconciliation? Same month for everyone each year or from their start date?
The reconciliation must occur on the anniversary that the annualised wage arrangement is entered into. For new employees, the annualised wage arrangement will ordinarily be entered into on the commencement of their employment.
When doing the annual reconciliation if there are weeks that the employee didn’t work 38 hours does this come into effect as they will have been overpaid in these weeks?
If an employee has been overpaid throughout the year (because, for example, they took a period of unpaid leave) it would appear that it would be possible to set this off against an “underpayment” of (for example) overtime worked as part of the reconciliation.
The alternative approach would be to reduce the amount the employee is paid during the year. For example, if the employee took a month of unpaid leave, not pay their salary for that month. The new award provisions do not seem to prevent this.
The annual reconciliation is based on the minimum wage of the award, not the rate the employee is paid for – is that correct?
Yes – the comparison is between the amount paid to the employee over the year against the award minimum rates. Any shortfall is paid at the award minimum rates.
When an employee is also provided with a free house, electricity and meat as part of their annual salary, I assume these can be valued and incorporated into the annual reconciliation? And that the value of each should be grossed up since if they were paying for it at arm’s length, it would be out of their after-tax earnings?
This would depend on the provisions of the award and whether this allowed for reduced payments based on being provided with such benefits.
The safest way to deal with this arrangement would probably be to enter into an agreement with the employee where they agreed that set amounts were deducted from their wages for the provision of accommodation, etc. We would advise that legal advice is sought in respect of such arrangements.
Please contact us to talk through your business requirements in more detail.
10. HR and Payroll Software
Can payroll software perform the annual reconciliation automatically?
In our view, Employment Innovations’ payroll solutions offer the most efficient and streamlined processes to perform annual reconciliations. We are not aware of any payroll products that can perform the annual reconciliation completely automatically, but our products will make the reconciliation as easy as it can be.
Please contact us to talk through your business requirements in more detail.
If time-sheet software is used where the employee clocks in and clocks out personally does that count as the employee “signing” the records of hours worked?
The requirement under the awards is for the employee to either: (a) sign the record, or (b) acknowledge that it is accurate in writing (which can be electronically).
Both EI’s payroll solutions and the Employment Hero app allow for employees to submit their timesheet data via an app on their phone, in our view this will meet the requirements of the award. For more information on Employment Hero or EI’s payroll solutions, please contact us to talk through your business requirements in more detail.
Do you have systems on offer for time recording?
Yes – we can supply you with Employment Hero or our own payroll solutions for these purposes.
Do these time-keeping apps still record data when the person doesn’t have mobile/internet reception? I have tech-challenged farmers out in the boon-docks with no mobile coverage.
At present this functionality is not available, the employee would need to submit time-recording data when they were back in an area with reception.
Does Employment Hero provide an employment contract template with an offset clause? Will it provide a template annualised wage document?
Yes and yes!
Can Employment Hero add an alert on the 12-month review requirement?
We are informed that Employment Hero is currently considering adding this functionality – we will be able to share more information once we are aware of a release.
Do Employment Hero timesheets have the ability for workers who are on a salary to complete a timesheet that records their hours but does not flow through to the payroll system e.g we record the hours but they are paid at their normal fortnightly wage?
What if an employee forgets to clock off or in?
The obligation under the award annualised wage clauses is on the employee to confirm the accuracy of the employer’s records. If an employee has forgotten to clock on or off the sensible approach would be for the employer to ask the employee for details of the hours they worked (and to seek validation of this if appropriate). Given the importance to the employer of keeping accurate records, it would be prudent that repeated breaches of clocking on or off are treated as a disciplinary matter.
Yes, it all costs money for timesheet apps on top of accounting program subscription. What about the small employer!
There is no requirement to have HR or payroll software to comply with these new provisions. However, given the reduction in admin time these solutions offer, they are likely to save your business money in the long run. Please contact us to talk through your business requirements in more detail.
How much is your timesheet app? Does one have to be subscribed to EI to get this? Can the timesheet app be saved as a PDF and saved electronically for the client?
See the answer above.
Will we be required to issue new contracts to all existing employees covered under these awards?
If you decide to pay an annualised salary in accordance with the award provisions, we recommend drafting and issuing an appendix to their existing contract. If you require a template appendix, please contact us to talk through your business requirements in more detail.
If you are using contractual offset clauses is it enough to record hours outside of standard working hours rather than clocking on and clocking off?
Regulation 3.34 of the Fair Work Regulations states that if a penalty or loading is payable for hours worked by an employee, employers must keep a record of the overtime worked each day or when they start and finish these hours.
Is there an issue if some employees are on an annualised wage arrangement and others are on a contract of employment with the set-off clause?
No, as long as all employees are being paid a salary which is sufficient to compensate them for all hours worked in each pay period.
What about employees who are not covered by an award, but have a contract instead?
If an employee is award-free the employer must pay the employee on or above the federal minimum wage, which at the time of writing is $19.49 AUD per hour.
If the employer decides to have an employment contract (as opposed to an Annualised Wage Arrangement), does the employer still need to specify which award the employee falls under? Context would be for professionals such as accountants, etc which normally I understood as being award-free.
If an employee is award-free, there will be no need to refer to an award in the contract. If the business takes the view that some employees are award covered, we would recommend referring to the award in the contract (many awards require employees to be informed in writing of the award that applies to them and their classification within it). Further, the majority of awards include an obligation to supply the employee with a copy of the applicable award.
So if you have an individual contract that has this offset clause in it, then the annual document is not required?
Correct. But it is vital that if the business elects to pay a salary in accordance with a set-off clause that it is confident that the salary paid to the employee is sufficient to compensate the employee for all hours worked in each pay period.
Employment Hero has templates and contracts. Will Employment Hero clients now receive the new contracts under their Employment Hero subscription?
Yes, the current Employment Hero contract templates include an off-set clause. The template appendix for those paying in accordance with the award provisions will also be available.
Many salary contracts include a reasonable overtime time clause in which employees agree no penalty rates or overtime will be paid, does this need to state how many hours are considered reasonable, i.e. setting the outer limit?
This is often the case for award-free employees that are not entitled to be paid for overtime. Employees covered by an award can work ‘reasonable’ overtime hours but they must be compensated for these in accordance with the award.
My understanding is that the Annualised Wage clauses explain what penalties or allowances can be incorporated into the annual salary. If a penalty is not specifically stated in the annualised wage clause, can you still include it in the salary provided the salary is sufficient to cover them?
You are right – the Annualised Wage clauses specify exactly what provisions of the award can be included in the salary paid in reliance on the award provisions.
If there was a financial benefit set out in the award that was not mentioned in the annualised wage clause, but which you wished to include in the salary, we do not see why you could not include such a financial benefit in a salary pursuant to a contractual arrangement, whilst at the same time paying other entitlements pursuant to the award provisions (this would be a sort of hybrid of the two salary arrangements).
However, you would need to ensure that the salary was sufficient to pay for this (extra) benefit in each pay period (you could not rely on the award provisions that allow for averaging or making good “underpayments” through the 12-month reconciliation).
This would be a somewhat complicated arrangement and we would advise that you seek specialist advice on this. Please contact us to talk through your business requirements in more detail.
In reality, we expect most (if not all) financial entitlements provided for in awards will be listed in the annualised wage clauses, so we expect this will come up rarely. The questions would be more complicated in respect of non-financial benefits listed in an award (breaks, leave, etc), and again we would recommend seeking advice in respect of this.
Is the obligation to keep records a legal one or just to protect the employer from legal action is they underpay an employee?
It is a legal obligation set out in the award (when a salary paid in reliance on the award provisions is used) or set out in the Fair Work Regulations 2009 when a salary is paid pursuant to contractual arrangements.
So the choice between ‘complying to all award provisions’ or opting for an ‘offset clause’, is an option for all types of awards?
However an employee is paid – by salary, by the hour, etc – the employee will always have to be paid all their entitlements as set out in the award.
Employers always have an option to pay an annual salary (through a contract of employment), regardless of which award applies to them.
In addition, 22 modern awards will, from the 1 March 2020, provide for an additional option for paying an annual salary through reliance on the award provisions (but this does not alter the right to pay through a contract as well).
Paying a salary through the award provisions has advantages where an employee’s hours are varied or unpredictable (as it allows the salary to be averaged over the year, i.e. to “underpay” in one period and “overpay” in another; it also allows an employer to put right any shortfall through an annual reconciliation without breaching the award). However, paying a salary this way is more bureaucratic (in terms of documents and record-keeping).
The acknowledgement piece, is that upfront or every pay period for banking and finance award? When and to who do we need to show the records too?
Every pay period. There is no general requirement to show the records to anyone (other than to the employee when they confirm their accuracy). The records could also be required to be disclosed as part of court proceedings or an investigation by the Fair Work Ombudsman.
Is there any protection if you are paying above the equivalent hourly rate under the award?
If at all times, and in each pay period, an employee is being paid above the award entitlements (including overtime, allowances, annual leave loading, etc) it would not be necessary to engage with the annualised wage provisions in the award.
It would be strongly advised to include an “offset” clause in the employee’s employment contract though (so that all payments could be applied against any entitlement that arises).
What happens for pay increases during the year, would we need to reissue new documents calculating the Annualised Wage Arrangement?
Not necessarily – you could just put right any shortfall through the annual reconciliation.
Can other entitlements e.g. meal breaks be included in the annualising?
The provisions of the award that can be included in an annual salary (paid in reliance with the annualised wage clause in the award) will be listed in the clause itself.
Some awards provide that employees receive overtime when they are not provided with a break. In that circumstance, the overtime payable for working through a break could be included in the salary.
If alternatively, you wished to alter the operation of breaks in the award, you would generally require an enterprise agreement or individual flexibility agreement (IFA), in respect of which specialist advice should be sought.
Please contact us to talk through your business requirements in more detail.
How can you guys help our clients? What are the options for membership/subscription etc, and what would they provide?
We have a range of products available to help with the new obligations including HR subscriptions where you would be provided with all the documents and advice you would need to navigate the changes, as well as payroll and HR software solutions to meet record-keeping and pay reconciliation requirements.
Please contact us to talk through your business requirements in more detail.
Are there guidelines on what is determined to be reasonable additional hours?
Employees can only be required to work “reasonable additional hours” over their ordinary hours (for full-time employees covered by an award, their ordinary weekly hours are 38 hours per week). None of the new annualised salary provisions changes this position.
For more information on this subject, please read our ‘reasonable additional hours’ Knowledge Base article.