Who Should Be Worried By Annualised Salary Changes?

The new annualised salary clauses will impact some employers more than others

Although the Fair Work Commission’s changes to rules for annualised wage arrangements are only due to affect 22 of the 122 industry awards, they impact several modern awards with the most extensive coverage, including the Manufacturing Award 2010, the Banking, Finance and Insurance Award 2020, and the Clerks – Private Sector Award 2010.

According to federal jobs data, there are about 1.7 million clerical and administrative workers in Australia, over 900,000 people employed in manufacturing, and nearly 500,000 workers in finance and insurance services.

These are Category 1 awards (of the three award categories used by the ATO that reflect the relative level of effort required to administer annualised salaries in each), which generally apply to industries or occupations where employees work relatively stable hours. Despite the predictability of employee hours in these industries, the changes from the FWC are an effort to prevent employees on annualised salaries being paid less than their award entitlements for actual hours worked.

Salary 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. Annualised salaries are paid out at a consistent value each pay period. Annualisation appeals to employers because it requires less administration then recording hours and paying irregular amounts on a pay-by-pay basis.

But with the new requirements for timekeeping and reconciliation, you need to decide if salary annualisation is worth your time.

Although new rules for annual wage arrangements came into force from the first full pay period on or after 1 March 2020, the updated award for the Banking, Finance and Insurance began on 4 February 2020, the one for Clerks is expected to start 13 April 2020, and the updated Manufacturing Award is expected to commence on 4 May 2020.

The good news for organisations with employees under Category 1 awards is that they are not required to gain their employee agreement for annualised salaries arrangements (unlike category 2 and 3 awards). However, those employers now have a whole raft of new obligations to fulfil.

Innes Willox, the Chief Executive of the national employer association Ai Group, said “For most businesses the biggest impact will be for clerical employees. For employers that choose to pay their clerical and administrative employees under the annualised salary clause in the Clerks Award, onerous record-keeping and pay reconciliation obligations apply from 1 March. These award obligations are more onerous than the pay record and pay slip requirements that are in the Fair Work Regulations 2009.”

There are a huge range of jobs that can be performed under the Clerks Award, including retail, call centres, data processing, the legal industry and office temps. 

Setting boundaries: Employers are 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.

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.

This record of hours and attendance must be signed by the employee or acknowledged as correct in writing (including by electronic means) for each pay period, which is used for reconciliation.

Reconciliation: The new annualised salary clauses require that each 12 months from the commencement of the annualised wage arrangement, or upon termination, employers must calculate the amount of remuneration that would have been payable to the employee under the provisions of this award. The amount is compared to the amount of the annualised wage actually paid to the employee, and any shortfall must be paid within 14 days.

The question now for employers is that if the new requirements for timekeeping and reconciliation mean that annualised salaries are no longer a more cost-effective way of remunerating employees – is it worth the effort?

Visit our annualised Salary webpage to see our growing collection of resources for payroll professionals dealing with the new rules, and subscribe to our mailing list to get a soon to be released series of Your Action Plan resources packed with expert advice and opinion on staying compliant.