From March 1, 2020, the Fair Work Commission (FWC) is bringing into force new rules for annualised salary arrangements in 22 modern awards.
Employers paying annualised salaries are now required to record employee work times and compare the salary value to what would have been earned under the award and backpay any difference..
With these new mandatory requirements for annualised salaries, the question now is if annualisation is worth the effort?
Annualisation cost vs benefit
Salary annualisation is a common practice that sees overtime, penalty rates and other employer obligations consolidated into an annualised salary value, which is paid out at a consistent value each pay period.
Checklist: Six steps to annualised salary compliance
Download the FREE checklist – Six Steps to Annualised Salary Compliance
Annualisation appeals to employers because it requires less administration than recording hours and paying irregular amounts on a pay-by-pay basis. For employees, the benefit is knowing what they’ll earn ahead of time. But ensuring annualised salary arrangements are airtight from a legal perspective is tricky, because a key FWC requirement is that their salary must take all award entitlements into account.
Understanding the core features
Mandatory timekeeping: Employers must record employee start and finish times, including any unpaid breaks. In effect, employers must keep accurate records of the hours that they work, for any employee paid an annualised salary, even where these hours may be stable from week to week.
Setting boundaries: Depending on the relevant award, employers may be required to advise employees in writing of how their annualised wage will satisfy the award and the method by which this has been calculated, as well as the maximum overtime (outside of the 38-hour week) they can work in a pay period without being entitled to a separate payment.
Employee consent: An employee’s agreement in writing will be required to implement an annualised salary arrangement for award Categories 2 and 3 (employees who work highly variable hours). The agreement may be terminated by the employer with 12 months’ notice; however, an agreement won’t be required for award Category 1 (employees who work relatively stable hours).
While employers may find the introduction of administrative requirements to be burdensome, it is important to note that compliance with modern awards, including the annual salary clauses, is a legal requirement and stiff penalties apply for non-compliance.
Visit our Annualised Salary webpage to see our growing collection of resources for payroll professionals dealing with the new rules.