Avoid the pitfalls of annualised wages

by | Nov 25, 2020 | Employment Law

Modern awards contain a number of employee entitlements and employers will frequently elect to pay their employees’ remuneration as an annual salary in order to streamline their payroll processes and to provide themselves with certainty about their annual remuneration expenses. However, earlier this year changes to several Fair Work awards were implemented that are challenging the administrative ease previously offered by annualised wages. The changes have clarified employers’ existing record keeping obligations and created some new obligations specific to employers who pay their employees an annualised wage.

Examples of records that must kept for each employee subject to an annualised wage include:

  • The annualised wage payable;
  • The applicable award provisions that will be satisfied by the annualised wage (e.g. minimum rates, allowances, overtime, penalty rates, annual leave loading, incentive-based payments or bonuses);
  • How the annualised wage was calculated, with each separate component of the calculation clearly identified;
  • The number of ordinary hours that would attract payment of a penalty rate under the applicable award and the number of overtime hours that the employee could be required to work in a pay period without being entitled to payment beyond their annualised wage; and
  • The starting and finishing times of work and any unpaid breaks taken. The employee must sign this record for each pay period.

Employers must then use these records to ensure that their employees have not been disadvantaged by the decision to pay an annualised wage. Each pay cycle, an employer must compare the actual number of hours worked by employees subject to an annualised wage to the maximum number of overtime hours specified in the calculation of the annualised wage provided to the employee by the employer. The employee must be remunerated for any hours that were worked during the pay cycle in excess of those accounted for in calculation of their annualised wage.

In addition, every 12 months from the commencement of an employee being paid an annualised wage, or when the employee’s employment is terminated, the employer must calculate the amount of remuneration the employee would have been entitled to under the applicable award over the same period and compare this to the annualised wage actually paid to the employee. Where the entitlements under the award exceed the annualised wage, the employer must pay the difference to the employee within 14 days of the calculation.

The importance of employers maintaining the records and undertaking the reconciliation processes described above properly is extremely high: under the Fair Work Act, where an employee alleges their employer has not properly documented their annualised wage, the onus is on an employer to produce their records and disprove the allegations.

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