Following a decision of the Full Bench, the Fair Work Commission has finalised arrangements for modern award changes including the insertion of new annualised salary clauses into several modern awards with effect from 1 March 2020. These changes introduce important new practices for HR and payroll aimed at reducing “wage theft” and non-compliance with awards.

The Fair Work Commission introduced changes to the terms of several modern awards which means there are new obligations for employers paying annual salaries under these stipulations. Although these changes will vary somewhat from award to award, some of the common changes will require employers to:

1. Implement written documentation which records which provisions of the award are intended to be included within the annual salary.
2. Specify in this documentation the ‘outer limits’ of the number of overtime or penalty rate hours that are included within the annual salary in each pay period/roster cycle.
3. Where an employee works hours which exceed those ‘outer limits’ in a pay period/roster cycle, pay the employee for those hours worked (at the relevant overtime or penalty rate) within the relevant pay cycle.
4. Keep records of the start times, finish times and unpaid break times for each employee paid an annual salary, and have employees sign, or acknowledge as accurate, that record in each pay cycle.
5. Perform an annual ‘reconciliation’, calculated from the start of the annualised salary arrangement or on termination of the employee’s employment. The annual reconciliation will involve calculating the amount the employee would have been paid if they were paid on an hourly basis in accordance with the award. If there is any shortfall, it must be paid within 14 days.

What are an employer’s obligations?

Employers are required to review employment contracts and update HR and payroll practices to comply with the new obligations.  This includes auditing annual salaries, recording hours of work and back payment of any shortfall when annual salaries are audited against modern award entitlements.

Which modern awards are affected by these changes?

Employers with employees covered by the modern awards listed in the industries/occupations below are highly likely to require amendments to employment contracts and adjustment to payroll and HR practices, in preparation for annual salary changes to be introduced on 1 March 2020:

• Banking, Finance and Insurance Award 2010
• Broadcasting and Recorded Entertainment Award 2010
• Clerks – Private Sector Award 2010
• Contract Call Centres Award 2010
• Health Professionals Award 2010
• Hydrocarbons Industry (Upstream) Award 2010
• Horticulture Award
• Hospitality Industry (General) Award 2010
• Legal Services Award 2010
• Local Government Industry Award 2010
• Marine Towage Award 2010
• Manufacturing and Associated Industries and Occupations Award 2010
• Mining Industry Award 2010
• Oil Refining and Manufacturing Award 2010
• Pastoral Award 2010
• Pharmacy Industry Award 2010
• Rail Industry Award 2010
• Restaurant Industry Award 2010
• Salt Industry Award 2010
• Telecommunications Services Award 2010
• Water Industry Award 2010
• Wool Storage, Sampling and Testing Award 2010

What are the modern award changes?

The changes apply only to full time employees and take effect from 1 March 2020.  Depending on which modern award(s) apply to your workforce, the model clauses will impose several detailed mandatory requirements on employers who pay employees an annual wage in satisfaction of specific modern award entitlements. For example, a requirement to advise employees in writing of:

• which provisions of the modern award that apply to them will be satisfied by payment of an annualised wage
• the mathematical method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation
• 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 under the award
• any excess hours of work that will not be covered by the annualised wage for which separate payments under the award would apply.

Employers are required by the new clauses to implement payroll and HR practices to ensure employees are always adequately compensated by the annual wage, including:

• Annual calculations of what the employee would have been paid under the award compared with the annualised wage actually paid, and perform reconciliations and back-pay any shortfalls within 14 days
• 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 in order to perform the calculations and reconciliations
• Records must be signed by employees or acknowledged as correct in writing (including by electronic means) each pay period or roster cycle

Why have the modern award changes been introduced?

The new award obligations are aimed at ensuring that award covered employees are properly compensated for the work they perform by ensuring annual remuneration received is adequately calculated and monitored to capture the full range of monetary benefits applicable under modern awards for the particular work performed.

How to comply with these modern award changes?

The first step to ensure compliance is to understand which modern awards apply to your workplace, including the new changes, and whether employees are currently paid correctly for the work they perform.

Secondly, amendments to employment contracts and adjustments to HR and payroll practices are highly likely to be the most practical and efficient way to comply with the obligations imposed with effect from 1 March 2020.

What happens if I fail to comply?

From 1 March 2020, a failure to comply will amount to a breach of a modern award, colloquially referred to by the media as “wage theft” and will attract civil penalties under the Fair Work Act 2009 (Cth).

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.

Sources: Employment Innovations, Fair Work Australia