In 2019, as part of their four-yearly review of modern awards, the Fair Work Commission (FWC) made the decision to change the annualised salary provisions for 23 awards starting from 1st March onwards (except for model clause 4).
Under the new legislation, employers who pay an annual salary to employees covered by certain modern awards must comply with new notification, recordkeeping, and reconciliation procedures to ensure employees are not disadvantaged.
Here’s what you need to know about the new annualised salary requirements, how to prepare, and how E-Payoffice can help you stay compliant in the face of ever-changing payroll requirements.
Which awards are affected by the new changes?
The legislation will include three new standard annualised salary arrangement clauses known as model clause one, three and four.
These new terms will replace the existing annualised salary clauses for 20 awards, and also be inserted for the first time into 3 awards that previously have no annualised salary clause.
Below are the following awards to be impacted by the changes:
- 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
- Wool Storage, Sampling and Testing Award 2010
- 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
- Horticulture Award 2010
- Pastoral Award 2010
- Health Professionals Award
- Restaurant Award (model clause 4)
- Marine Towage Award (model clause 4)
- Hospitality Award (model clause 4)
Although similar in many ways, each model clause has slightly different variations on how they’re implemented. For this reason, it’s vital that you know the key differences between each clause, and how they relate to your business. Given many salaried staff are based on the Clerks Private Sector Award, now is the time to start researching.
Employers will need to:
- Identify award based employees and who is excluded
- Consider changes they should be making to contracts
- Determine and manage outer limits
- Keep records and reconciliations
- Consider how they will implement this to their current systems
E-Payoffice can help take the stress out of your payroll and keep you up to date with ever-changing legislation with online payroll software and outsourced payroll services.
Talk to the payroll experts at E-Payoffice today to request a demo.
New employer obligations you should know about
Employers who wish to pay their employees with an annualised salary will need to update the way they record, notify, and reconcile their payroll procedure, so as not to disadvantage employees covered by a relevant award.
Is there a high income cap? The employee must be guaranteed to earn more than the high income threshold (currently $148,700 and is indexed each year) and they must also “accept a written guarantee of annual earnings”.
Before or at the time of giving a guarantee of annual earnings to an employee covered by a modern award that is in operation, an employer must notify the employee in writing that a modern award will not apply to the employee during any period during which the annual rate of the guarantee of annual earnings exceeds the high income threshold.
So all employees, regardless of their salary amount, must be checked to see if the new legislation would apply to them and if so, reconciled in line with the new legislation. Failure to do so could result in serious penalties.
Below is a breakdown of the new obligations you should be aware of:
New requirements for relevant employee contracts
Whether you’re updating an existing employee contract or creating a new one, under the new legislation you must include the following details:
- Total amount of annualised salary to be paid to the employee.
- Breakdown of the exact method used to calculate the salary, including the individual components of the salary (i.e. overtime, penalty rates).
- The amount (or ‘outer limit’) of ordinary hours that must be worked before the employee is entitled to receive penalty rates under the award in a given pay period or roster cycle.
- The outer limit number of overtime hours an employee is required to work in a given pay period or roster cycle.
In addition to this, if an employee works beyond the outer limits of either their ordinary or overtime hours (in a given pay period or roster cycle), then those hours are not covered by the annualised wage and must be paid separately.
Annual reconciliation every 12 months
Every 12 months, from the commencement of the new arrangement (or the termination of employment), employers must calculate the amount at which the employee would have been paid under the modern award, and compare it against their own annualised salary arrangement.
If any shortfalls are identified, the employer must rectify those shortfalls within 14 days.
New recordkeeping obligations
In regards to recordkeeping, employers will be required to keep records of both the start times and unpaid breaks for each relevant employee.
Furthermore, these employee must sign or acknowledge in writing that such information is accurate for each pay period or roster cycle.
How to prepare for the new legislation and stay compliant
The new legislation will officially come into effect on 1 March 2020 (except model clause 4).
So, for employers who pay annualised salaries to employees covered by a modern award (that have an annualised salary clause), they must ensure their payroll system is up to date and compliant.
If these changes may affect you, you should take the following steps:
- Make sure each annualised wage arrangement is consistent with the relevant modern award. This means you cannot provide less than the minimum payable amount – for the same amount of work performed in a given year – offered by the relevant modern award
- Follow the annual reconciliation requirements every 12 months as previously stated above.
- Maintain a record of start and finish times, including unpaid breaks. And ensure the record is signed by the employee – or acknowledged in writing – to confirm the information is correct, during each pay period or roster cycle. An electronic acknowledgement is also acceptable under this arrangement.
Let E-Payoffice take the stress out of payroll with smart payroll software and outsourced payroll services.
To request a demo, talk to the payroll experts at E-Payoffice today.
Fill out the online form or call (02) 8660 0944.