The Fair Work Commission is changing the standard “annualised salaries” clause that appears in many commonly applied modern awards, and an amnesty for employers that have underpaid employee superannuation is currently before the Federal Parliament.
These changes should be a trigger for a review and audit of your wage payment practises to uncover inaccurately calculated entitlements that could grow out-of-sight into a major issue.
New requirements for annualised salaries
Salary annualisation sees overtime, penalty rates and other obligations estimated annually rather than recorded on a week-by-week basis, which appeals to employers because it requires less administration. For employees, the purported benefit is knowing what they’ll earn ahead of time. But ensuring annualised salary arrangements are airtight from a legal perspective is tricky.
If salaried staff work more hours overall – and more hours covered by a penalty rate – then the award mandated, they have grounds for wage recovery. Without reconciliations ensuring that hours are matching pay, this problem balloons out over time.
To ensure that employees are not disadvantaged by annualised wage arrangements the Fair Work Commission is bringing new rules around annualised wage arrangements into force from March 2020:
- Mandatory timekeeping: Employers must record employee starting and finishing times and any unpaid breaks taken, and make a separate payment, in addition to the salary, for hours worked beyond the limit set for that role.
- Employee consent: For the most part, annualised salary arrangements are at the discretion of the employer, however, in some instances the employee will have the right to refuse.
Taking the carrot-and-stick to super compliance
The Federal Government reintroduced legislation to establish a one-off amnesty for historical underpayment of superannuation guarantee (SG) in September 2019. It’s proposed the amnesty will apply from 24 May 2018, when it was originally announced (but did not passed in the last parliament), until 6 months after the legislation comes into law.
Since the amnesty was announced over 7,000 employers have come forward to self-report superannuation underpayments. Although the legislation would validate past disclosures, it carries a big stick. Employers with a history of super underpayment that don’t self-report during the amnesty will have their penalty doubled.
Senator Jane Hume, the Assistant Minister for Superannuation, Financial Services and Financial Technology, addressed the reintroduction of the amnesty legislation in a media release, where she said: “This is a one-off opportunity to set things right, and going forward the ATO has the tools to spot unpaid super.”
Checklist: Where you have identified underpayment issues, transparency is key. Here are six clear, decisive actions to minimise damage.
Download the FREE checklist – Six Actions to Minimise Wage Underpayments
Why the super confusion?
Research released in 2018 by Industry Super Australia (ISA) suggests that super underpayment affects over one in three workers. A common reason cited by many employers and associations for the high level of underpayments witnessed in recent years is the complexity of Australia’s system of awards and agreements, with a range of different loadings and rates and multiple clauses for different grades and types of employees.
Even so, over time our IR system has become less complex, and employers have more flexibility and less admin with enterprise bargaining agreements and measures like annualised salaries:
- Australia used to have a web of federal and state laws and tribunals. For a company operating nationwide, it meant workers in different states could be covered by different awards with varying pay rates and conditions.
- In 2005 the Coalition government introduced the Work Choices Act and implemented a new national workplace relations system.
- In 2009 the Labor government replaced Work Choices with the Fair Work Act but kept the national system.
- About 1,500 federal and state awards have now been refined down to 122 federal awards for specific industries and occupations.
Employees can miss out on their full super contributions for a range of reasons.
There’s deliberate non-payment of employees’ super, whether it’s an attempt to dodge responsibility or because of cash-flow problems. Businesses are not required to pay super at the same time as wages, so entitlements can disappear if the business goes belly-up.
Some common but inadvertent errors include counting salary sacrifice as the employer super guarantee contribution, and which payments are ordinary time earnings and thus require the super guarantee. The superannuation liability applies to anyone who supplies labour – they are deemed to be employees whether they’re a contractor or other non-traditional worker.
Read on – Underpayments Just Aren’t Super: There’s far more than money at risk with super guarantee non-compliance.
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