Employers are regularly caught out not being aware of their obligations under annualised wage arrangements in employment contracts.
An annualised wage arrangement is a very specific entitlement available only to employees under certain Modern Awards.
There are over 150 Modern Awards and only 22 of which have an annualised wage arrangement clause.
An annualised wage arrangement under an Award, is a clause that permits employers to pay full-time employees an annualised wage in satisfaction of a number of other Award entitlements such as, but not limited to, minimum rates, allowances, overtime, rest periods, penalty rates ordinary hours of work, annual leave loading.
Under this clause of an Award, an employer must keep in writing a record of the annualised wage payable, which provisions of the Award are satisfied by the annualised wage, how the annualised wage has been calculated and a detailed list of the outer limit number of ordinary hours to be worked.
An outer limit includes the maximum number of hours under the annualised wage that would cover the number of hours that would attract a penalty rate, the number of hours for which overtime is covered by the annualised wage etc.
If an employee works hours that are more than the defined outer limit in a pay period, such hours will not be covered by the annualised wage and must be separately paid for in accordance with the applicable provisions of the relevant Award. Importantly, annualised wage arrangements must not disadvantage an employee.
Importantly employers need to be aware there are audit obligations under the annualised wage arrangement clause. An employer utilising an annualised wage arrangement must conduct a 12-month audit to compare the amount that was paid to an employee under the annualised wage arrangement against what the employee would have been paid under the Modern Award. If there are any discrepancies, this must be paid to the employee within 14 days.
Often employees request their employers to pay them an annual salary rather than an hourly or weekly wage. Employers make the mistake of referring to this in the employment contract as an annualised wage arrangement. An annualised wage arrangement only applies if the employee is covered by one of the 22 Modern Awards that provide for this.
But what if my employee is covered by a different Award or is Award Free?
The good news is that there are different ways an employer can structure wages which will give the same result as an annualised wage arrangement. Employers not covered by one of the 22 Modern Awards can implement any of the following options when structuring wages:
What do employers need to do:
Employers who are covered by the 22 Modern Awards which allow for annualised wage arrangements should consider whether or not they are necessary. If an employer does enter into this arrangement with their employee, they need to ensure they are compliant with their obligations under the Award to ensure they are not breaching their obligations.
For employers who are not covered by the 22 Modern Awards and would like to consider different ways to structure their employees’ wages, now is a good time to conduct a payroll review.
Employers may like to consider different ways of structuring wages for many different reasons ranging from better employee retention to efficiencies from a payroll perspective.
How We Can Help:
You can’t afford to get it wrong! The South Australian Business Chamber’s team of consultants are experts in industrial relations and can work with you to conduct an audit on your payroll system, and review your contracts, IFA’s or Agreements to ensure your compliance.
Our team of Workplace Advisors are also on standby to provide you with advice on rates of pay, Modern Award classifications and more.
Contact our Business Advice Hotline on (08) 8300 0000 (select option 1) and we will make sure you are not at risk of a costly underpayment.
