If you are an employer and pay any of your employees an annualised salary, there are big changes on the horizon that you must be aware of.  These proposed changes place a number of onerous obligations on employers, particularly around record keeping and regular reconciliations.

What is happening?

In early 2018, the Fair Work Commission (‘FWC’) determined that a model annualised wage arrangement provision was to form “part of the fair and relevant minimum safety terms and conditions” of modern awards. The FWC drafted four variant model annualised wage arrangement provisions and called for submissions from interested parties on the proposed inclusion of the provisions in modern awards. The draft provisions cover both employees who work reasonably stable hours and those who work highly variable hours or substantially work ordinary hours that attracted penalty rates.

The FWC received written and oral submissions from a number of interested parties, including unions and employers in the hospitality, health, farming, rail and legal service industries.  The parties took contrasting positions on the issue and there appeared to be no consensus as to how the provision should be applied.  Many employers expressed concern over the proposed model clauses, particularly that the inclusion of an annualised wage arrangement would impose “onerous record keeping requirements on the employer” and the extensive “requirements and conditions on employers and employees covered by the proposed clauses would, in fact, negate the benefit of the clauses”.  Conversely, submissions from a number of unions praised the proposed provision for providing “greater safeguards” for employees.

In an unprecedented decision handed down last Wednesday, the Fair Work Commission resolved the outstanding issue and determined that “the inclusion of annualised wage arrangement clauses is necessary to meet the modern awards objective”.  The Full Bench acknowledged that while the record keeping and reconciliation requirements “may be more administratively burdensome than under existing provisions which do not contain such a requirement, it is nonetheless the case that it remains less onerous than calculating wages weekly, fortnightly, or monthly in accordance with the normal requirements”.  The FWC further added that the provision would aim to “ensure that employees were not disadvantaged”.

What obligations do the model annualised wage arrangement impose on employers?

1. A requirement that the employer advise the employee in writing and keep a record of:

.     The annualised wage that is payable to an employee;

.     The method by which the annualised salary has been calculated; and

.    The outer limit number of ordinary hours which would attract the payment of a penalty rate under the modern award, and the outer limit number of overtime hours which the employee                     may be required to work in a pay period without being entitled to an amount in excess of the annualised wage in accordance with the annualised wage clause.’

2. A requirement that the employer undertake an annual reconciliation of salary arrangements.

Also, interesting to note is that it is proposed that an annualised salary agreement can be terminated by the employee or employer giving 12 months’ notice to the other party, or at any other time as agreed in writing between the employer and employee concerned.

What next?

The FWC has invited interested parties to file submissions in response to the 27 February 2019 decision by 27 March 2019.

It is expected shortly thereafter the annualised wage arrangement provisions will be inserted into modern awards. This will require employers to review all pay arrangements they have with employees receiving an annual salary to check if a modern award annualised wage arrangement provision applies, and if so, that they are compliant with the provision.

Employers can prepare for the introduction of the annualised wage arrangement provisions, by undertaking an audit of their employees pay arrangements and record keeping practices today.  For assistance with this, or if you are unsure of your obligations as an employer under the new annualised wage arrangement provisions or would like more information on how the change may affect your business, please contract HR Law.


The content of this article is intended to provide a general guide to the subject matter.  Specialist advice should be sought about your specific circumstances.

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