Putting employees on a salary rather than an hourly rate with penalties and overtime as they apply, is a simpler way for many businesses to get around the confusion that often results in underpayments. Having a recurring rate of pay each week, also takes away the pain from payroll when it comes to entering the changes that come with each pay cycle.

Annualised salary payments take into account, the hourly rate of pay, overtime, weekend and other penalties, leave loading and eligible allowances.

With effect from 1 March 2020, 19 awards with existing provisions for annualisation of salary will be updated with the formalities that now apply. Three additional awards have also been included in the change that is categorised into the following model clauses:

Model Clause 1

This will become the standard annualised wage arrangements clause for awards under which employees generally work relatively stable hours, namely the: Banking, Finance and Insurance Award 2010; Clerks – Private Sector Award 2010; Contract Call Centres Award 2010; Hydrocarbons Industry (Upstream) Award 2010; Legal Services Award 2010; Mining Industry Award 2010; Oil Refining and Manufacturing Award 2010 (clerical employees only); Salt Industry Award 2010; Telecommunications Services Award 2010; Water Industry Award 2010; and Wool Storage, Sampling and Testing Award 2010.

Model Clause 3

This will become the standard annualised wage arrangements clause for awards under which employees work highly variable hours or significant ordinary hours which attract penalty rates under the award, namely the: Broadcasting and Recorded Entertainment Award 2010; Local Government Industry Award 2010; Manufacturing and Associated Industries and Occupations Award 2010;Oil Refining and Manufacturing Award 2010 (non-clerical employees); Pharmacy Industry Award 2010; Rail Industry Award 2010; Pastoral Award 2010; and Horticultural Award 2010.

The key difference between the two clauses is that Model Clause 1 does not require the agreement of an employee to enter into an annualised salary arrangement whereas Model Clause 3 requires such an agreement. Model Clause 3 allows to terminate the arrangement by mutual agreement between the parties or by either party giving 12 months’ written notice.

Under both clauses, the employer must notify a full-time employee in writing of:

  • the annualised salary that is payable;
  • the award provisions which are satisfied by payment of the annualised salary;
  • the method of calculation of the annualised salary, including specification of each separate component of the annualised salary and any overtime or penalty assumptions used in the calculation;
  • the outer limit number of ordinary hours that would attract the payment of a penalty rate under the award; and
  • the outer limit number of overtime hours which an employee may be required to work without being entitled to an amount above the annualised salary.

If an employee works any hours over the outer limit amounts specified above, such hours must be separately paid in accordance with the provisions of the applicable award.

To minimise this risk, employers should ensure that:

  • they know the modern award and classifications that apply to their employees;
  • the annualised salary arrangement complies with the new requirements contained in the applicable award; and
  • the annualised salary is sufficient to compensate for the hours effectively worked by an employee.

See also: Key changes to modern award annualised salaries

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Please contact Lauren Morrison at Lauren@lmhr.com.au or Mob: 0400 225 499 if you would like to learn more about how LM HR Consulting can assist your business with your HRM requirements.