FWC Changes to Annualised Salary Clauses in Awards (March 2020)
The Fair Work Commission has announced amendments to 22 modern awards that affect the employment of salaried staff members. The major changes introduced by these amendments include: a new requirement for employers to keep time and attendance records for salaried employees; a new entitlement that employees be paid overtime and penalty rates in addition to […]
13 January 2020 |
The Fair Work Commission has announced amendments to 22 modern awards that affect the employment of salaried staff members. The major changes introduced by these amendments include: a new requirement for employers to keep time and attendance records for salaried employees; a new entitlement that employees be paid overtime and penalty rates in addition to their annualised salary in some circumstances; and a new requirement that employers conduct a 12 monthly reconciliation of the salary against what the employee would have been paid under the award. This means that salaried staff who traditionally haven’t recorded their hours of work will now need to keep a record of their start and finish times, including breaks. Employers will now need to use those records to ensure the employee is paid more under the salary than they would have been paid under the award. Tanda is working on creating a feature release that will help with compliance and eliminate possible additional admin that comes with the change. Subscribe here and we’ll keep you updated. Tanda has developed the below process as a guide for complying with these new requirements. Step 1 – Determine which award conditions will be covered by the annualised wage An annualised wage is typically paid in satisfaction of as many pay conditions as the award allows (e.g. minimum weekly wages, allowance, overtime penalty rates, weekend and other penalty rates, and annual leave loading). You should check your award to determine which pay conditions can be satisfied by the annualised wage. At this stage, the new clauses will allow annualised salaries only for full-time employees. Step 2 – Calculate the annualised wage The new award clauses require you to determine “the method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation”. This type of modelling is easy in Tanda. Just create a test roster for a month (or even a full year). It is better to slightly overestimate the overtime hours and penalty rate hours that might be worked. Don’t forget about allowances, or about penalty rates that might apply at irregular intervals (e.g. for work on public holidays). Some awards also require the annualised salary paid to non-managerial staff to be greater than a certain percentage of the minimum weekly award wage that would have been paid to the employee. If your award includes that requirement, you should also check your employee’s annual salary against that percentage. Step 3 – Set the “outer limits” for penalty and overtime hours The new award clauses will require you to set a limit on how many overtime and penalty rate hours that the annual salary covers in each pay or roster cycle. Any hours worked beyond the outer limit within the same cycle will need to be paid in addition to the annualised wage. The same awards that require the annualised wage be a set percentage greater than the minimum award wage will also have a maximum number of outer limit hours that may be covered by the annualised wage. However, most awards do not specify the maximum number of outer limit hours. We suggest employers regard the following guidance from the Fair Work Commission about how to set the outer limit hours: The outer limit hours per pay cycle can be greater than the average number of overtime and penalty rate hours that the annualised wage is calculated to cover under Step 2. Example: if the annualised wage assumes the employee will work an average of 5 overtime hours per week over the year, the specified outer limit of overtime hours may be 10 per week. Although not expressly stated in the new clause, the FWC anticipates that the outer limits will allow only “reasonable” fluctuations in the amount of overtime or penalty hours per week. That is, you should be prepared to justify why the outer limit hours that you set are a reasonable “flex up” for the employee for that pay cycle. As above, the outer limits can be set so that the employee is paid less in that pay or roster cycle than they would have been paid under the award. The FWC has provisionally set the following maximum number of outer limit hours that may be worked for the awards mentioned above: where the annualised wage must be at least 25% greater than the minimum award wage, the maximum outer limit of ordinary-time penalty rate hours is an average of 16 per week, and the outer limit of overtime hours under is an average of 10 per week. where the required pay uplift is 40%, the respective maximum outer limits were provisionally set at 20 and 15 per week. Step 4 – Document the terms of the annualised salary You must keep a written record of: the amount of the annualised salary (see Step 2); which award conditions will be covered by the annualised wage (see Step 1); the method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation (see Step 2); the outer limit overtime and penalty rate hours (see Step 3). This record must be given to the employee. Some awards also require that the employee agree to being paid the annualised wage. Remember that you can store this record against the employee using files on the Tanda Platform™. Step 5 – Employee confirmation of their time and attendance The new award rules require you to keep a record of the employee’s starting and finishing times of work, and any unpaid breaks taken. This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle. Tanda has a workflow to electronically manage this requirement, whether or not you require the employee to clock in and out using Tanda’s Time Clock. Workplaces who traditionally don’t use an attendance device can manage this by exception. Step 6 – Checking the outer limits and other amounts not included in the annualised wage Each pay or roster cycle, you will need to check whether the employee has worked in excess of the outer limit overtime or penalty rate hours. You will also need to check whether the employee should be paid any other amount that is not covered by the annualised wage, e.g. if the annual salary does not cover all award pay rules. You can easily check this in Tanda by comparing the Salaried amount against the equivalent Full-Time Classification. Tanda is also leading the charge in building automation into this process to allow businesses to manage by exception. You will need to pay an employee for the overtime and penalty rate hours that they work in excess of the outer limits. The additional payment will be due in the same pay or roster cycle that the hours were worked. Step 7 – Wage review The new clause requires you to calculate the amount that the employee would have been paid under the award and compare this to the annualised wage actually paid to the employee. This comparison must be undertaken: each 12 months from the commencement of the annualised wage arrangement; or upon the termination of employment of the employee. You can easily do this in Tanda by comparing it to the equivalent full-time classification for the annual period. Ensure that the employee’s award entitlements are properly configured, including classification and allowances. Tanda can also provide an exportable report that details the breakdown of the gross wages by pay condition. If the employee would have been paid more under the award than under the annualised wage, you must pay the employee the amount of the shortfall within 14 days of the review. Current developments At the time of writing, the Fair Work Ombudsman (FWO) has not issued any guidance about how the new annual salary requirements should be applied. Tanda has assembled a project team who are actively liaising with stakeholders, including employers and industry bodies, to create a staged feature release that is consistent with the requirements of the annualised salary changes taking effect in March 2020. The backbone of this release is a powerful reporting tool that aims to eliminate the additional admin burden brought by the changes. For updates on the project, enter your details below: Project Updates: Register your interest List of awards affected by this decision Banking, Finance and Insurance Award 2010 Broadcasting, Recorded Entertainment and Cinemas Award 2010 Clerks – Private Sector Award 2010 Contract Call Centres Award 2010 Health Professionals and Support Services Award 2010 Horticulture Award 2010 Hospitality Industry (General) Award 2010 Hydrocarbons Industry (Upstream) Award 2010 Legal Services Award 2010 Local Government Industry Award 2010 Manufacturing and Associated Industries and Occupations Award 2010 Marine Towage Award 2010 Mining Industry Award 2010 Oil Refining and Manufacturing Award 2010 Pastoral Award 2010 Pharmacy Industry Award 2010 Rail Industry Award 2010 Restaurant Industry Award 2010 Salt Industry Award 2010 Telecommunications Services Award 2010 Water Industry Award 2010 Wool Storage, Sampling and Testing Award 2010 If you have questions about how Tanda can assist you with these new requirements, register on the link above. If you’re unsure about the legal effects of these changes to your business, call the Fair Work Infoline on 13 13 94.