On the 1st of September 2022, a significant change is coming for businesses that employ people on the Hospitality Industry General Award (HIGA), as well as the Restaurant Industry Award (RIA). The change imposes stricter rules on businesses that use annual salaries for full-time employees. The changes will not apply to employees within the Managerial Staff (Hotels) classification level.
The New Changes To The Hospitality Award
The Fair Work Commission will change the Hospitality Award by inserting a clause called “Annualised Wage Arrangements”. This clause contains important new rules that you need to follow to stay compliant.
Minimum Annual Salary
Currently, businesses that pay annual salaries to pay full-time employees must pay at least 25% more than the employee’s minimum weekly rate.
To use the annual salary clause, businesses must also specify in a written agreement with the employee that the annual salary covers each of the typical entitlement provisions below:
Clause 18 – Minimum rates
Clause 26 – Allowances
Clause 28 – Overtime
Clause 29 – Penalty rates
Clause 30.3 – Payment for annual leave loading; and
Clause 35.3(a) – Additional public holiday arrangements for full-time employees.
This is important. Failing to specify that the salary covers all of these provisions could mean you have to pay anything left off in addition to the annual salary.
The new changes to the hospitality award will require the employer to top up the annual salary if the employee works too many hours that are overtime or paid penalty rates under the award. The top-ups kick in if the employee works more than the following on average over their roster cycle:
- 18 ordinary hours which would attract a penalty rate, excluding any hours worked from 7.00 pm to midnight; or
- 12 overtime hours.
These averages apply over each roster period. If the employee works more than these hours, such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of the award.
The last rule is that employers need to check that the annual salary ends up paying the employee more than they would have been paid if they had just been paid all the usual entitlements under the award like the minimum weekly rate, overtime, penalty rates, etc.
This check, sometimes called an annual reconciliation, needs to happen every year, or when the employee’s employment ends. To compare, businesses need to look at exactly when the employee worked, calculate the pay rate they were entitled to at different times, and compare it with their salary. This is known as a wage reconciliation.
If you’re using Tanda, a wage reconciliation is straightforward. Tanda users can use the Wage Compare feature to perform these calculations smoothly and accurately. For a simple guide on how to use Wage Compare, check out the help guide here.
It’s important also to check your roster each time it’s published to make sure that your salaried employees aren’t working above the average hourly limits for penalty rates and overtime, and if they are, to compensate them appropriately.
Calculating Annual Salary
With all of this in mind, how should a business go about calculating an annual salary, with the new changes to the hospitality award? The simplest way to do this is to find the base weekly rate, apply the 25% multiplier, and times by 52 (the number of weeks in a year).
So, let’s take a commonly salaried employee in a hospitality business where these new considerations may have an impact – a commis chef. At Level 3, grade 2 (a common classification for a Chef in a pub), the minimum weekly full-time pay is $899.50. Using a base rate multiplier of 1.25, and multiplying by the 52 weeks in a year, we get a minimum annual salary of:
899.50 x 1.25 x 52 = $58,467.50
From here, the business would have to check
- That the salary covered the actual entitlements based on the hours the chef worked (annual reconciliation).
- That the Chef did not exceed the ‘outer limits’ of penalty rate and overtime hours in each roster period.
The business would also need to decide if the salary is high enough to attract talent in the market.
Suggested Roster Tips
Businesses should take the “Outer Limits” into consideration when designing their roster, as going over these hourly limits will incur additional costs.
While Tanda understands that every business will have slightly different needs, there are several generic options for businesses looking to reduce their cost risk. Remember, the hours are averaged across your roster period. A longer roster period would reduce the risk of having to pay staff extra.
Suppose there is an outlier event – say a big football game – needing your staff to work lots of overtime and penalty rate hours. If your roster is published every week, the average hours worked by annual salary staff that week would be very large and you’d likely have to pay extra costs.
But if the roster is published every 4 weeks, then those hours would be averaged across the entire period, meaning you’d be less likely to go over the outer limits. Of course, not every business has the ability to chop and change its roster so easily, and how you respond to these changes will depend on a host of business requirements.