If you have adopted annualised salaries in your business…watch out.
There have been numerous high profile wage underpayment scandals reported in the media recently…so you need to make sure you don’t make the 6 o’clock news too. New obligations will take effect from March 1, 2020 and are likely to have a significant operational impact on employers who pay annualised salaries to employees, covered by certain categories of modern awards.
What is an annualised salary?
An annualised salary is the payment of an “all inclusive” annualised rate of pay, which is intended to compensate an employee for all entitlements, such as minimum rates, allowances, overtime, penalty rates and annual leave loading. Under an annualised salary arrangement, employees are paid the same amount each pay period.
What are the new requirements?
The employer must notify a full time employee, in writing the…
- Annualised salary
- Award provisions which are satisfied by payment of the annualised salary
- Calculations of the annualised salary, including each separate component, including any overtime or penalty assumptions, used in the calculation
- Outer limits of ordinary hours, which would attract the payment of a penalty rate under the award
- Outer limit of overtime hours, which an employee may be required to work, without being entitled to an amount above the annualised salary.
If in a pay period, an employee works any hours in excess of the outer limit, those hours will not be covered by the annualised salary and must be paid separately.
What are the consequences?
While the new obligations include a range of protections to prevent employee disadvantage, the increase in the administrative burden, will be significant.
Employers will have to put in place a system, which records the start and finish time of work, unpaid breaks and overtime hours for each pay period, for each employee subject to an annualised salary. The records must be signed or acknowledged as correct by the employee, for each pay period. Every 12 months from the commencement of the arrangement, or on termination, the employer must calculate the amount of remuneration, which would have been payable to the employee under the provisions of the award and compare it to the amount of the annualised salary actually paid to the employee. If there is any shortfall, the employer must pay the outstanding amount within 14 days.
Finally, it’s not unreasonable to say that the cost of satisfying these obligations, particularly in relation to record-keeping, defeats the purpose for employers to adopt annualised salaries, which historically was to reduce the administrative burden associated with calculating overtime, penalties and allowances in each pay period.
Disclaimer…this article is intended to be a just a brief introductory guide and you should seek professional assistance, to avoid being named and shamed.